TIDMAXL
RNS Number : 3386T
Arrow Exploration Corp.
24 November 2021
24 November 2021
NOT FOR RELEASE, DISTRIBUTION, PUBLICATION, DIRECTLY OR
INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO OR FROM THE UNITED
STATES, AUSTRALIA, JAPAN, THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER
JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OF THE
RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION.
Arrow Exploration Corp.
("Arrow" or the "Company")
Third quarter INTERIM RESULTS
Close of private placement
and
appointment of joint broker
Arrow Exploration Corp. (AIM: AXL ; TSXV: AXL), the high-growth
operator with a portfolio of assets across key Colombian
hydrocarbon basins, is pleased to announce the filing of its
unaudited Financial Statements and MD&A for the quarter-ended
September 30, 2021, which are set out further below and available
on SEDAR (www.sedar.com). All dollar figures are in U.S. dollars,
except as otherwise noted.
FINANCIAL AND OPERATING HIGHLIGHTS
Financial and operating highlights for quarter include the
following:
Three months Nine months Three months
ended September ended September ended September
(in United States dollars, except 30, 2021 30, 2021 30, 2020
as otherwise noted)
--------------------------------------- ---------------------------- ----------------- ----------------------------
Total natural gas and crude oil
revenues, net of royalties 1,684,609 3,473,661 207,934
Funds flow from (used in) operations
(1) 875,621 257,504 (1,095,338)
Per share - basic ($) and diluted
($) 0.01 0.00 (0.02)
Net income (loss) (21,781) (1,266,503) (1,390,746)
Per share - basic ($) and diluted
($) (0.00) (0.02) (0.02)
Adjusted EBITDA (1) 966,234 264,032 (1,090,974)
Weighted average shares outstanding
- basic and diluted 68,674,602 68,674,602 68,674,602
Common shares end of period 68,674,602 68,674,602 68,674,602
Capital expenditures 148,528 230,480 146,584
Cash and cash equivalents 5,465,981 5,465,981 91,248
Current Assets 8,644,830 8,644,830 5,119,909
Current liabilities 7,861,123 7,861,123 16,206,286
Working capital (deficit) (1) 783,707 783,707 (11,086,377)
Long-term portion of restricted
cash (2) 485,263 485,263 441,284
Total assets 25,362,323 25,362,323 46,702,911
Operating Three months Nine months Three months
ended September ended September ended September
30, 2021 30, 2021 30, 2020
--------------------------------------- ---------------------------- ----------------- ----------------------------
Natural gas and crude oil production,
before royalties
Natural gas (Mcf/d) 501 419 532
Natural gas liquids (bbl/d) 11 6 7
Crude oil (bbl/d) 481 308 9
Total (boe/d) 575 384 104
Operating netbacks ($/boe) (1)
Natural gas ($/Mcf) 1.35 1.07 1.06
Crude oil ($/bbl) 37.59 34.29 ($247.98)
Total ($/boe) 30.73 27.73 ($36.14)
(1) Non-IFRS measures - see "Non-IFRS Measures" section within
this MD&A
(2) Long term restricted cash not included in working
capital
Discussion of Operating Results
The Company's Q3 2021 average corporate production was 575
boe/d, an increase of 244 boe/d compared to Q2 2021 average
corporate production of 331 boe/d, or 74%.
The increase in production quarter-over-quarter was largely
attributable to a full quarter of production following the re-start
of the Company's Oso Pardo field in late-Q2 2021, and its share of
increased production from Ombu (Capella), both located in Colombia,
as well as an increase in its share of natural gas production from
certain Canadian assets.
The Company's production on a year-to-date, sequential
quarterly, and year-over-year quarterly basis is summarized
below.
Average Production by Property
Average Production Boe/d YTD 2021 Q3 2021 Q2 2021 Q1 2021 Q3 2020
-------------------------- --------- -------- -------- -------- --------
LLA-23 - - - - 1
Oso Pardo 53 137 20 - -
Ombu (Capella) 98 193 97 - -
Rio Cravo Este (Tapir) 157 151 147 174 8
Total Colombia 308 481 264 174 9
Fir, Alberta 76 94 67 68 96
-------------------------- --------- -------- -------- -------- --------
TOTAL (Boe/d) 384 575 331 242 105
-------------------------- --------- -------- -------- -------- --------
During Q3 2021 and subsequent to the quarter-end the Company
successfully executed on several initiatives to continue increasing
its production and cash flow, including:
-- Re-starting production from the Oso Pardo-1 and Oso Pardo-2
wells, located adjacent to the Morsa-1 well, and adding current
combined production of approximately 18 bbls/d; and
-- Announcing and executing on field activities associated with
the planned tie-in of behind-pipe natural gas from the
03-26-52-23W5 well (the "3-26 Well") located at West Pepper,
Alberta.
Discussion of Financial Results
During Q3 2021 the Company continued to realize strong oil and
gas prices, as summarized below.
Average Benchmark and Realized Prices
Three months ended Nine months ended
September 30 September 30
-------------------------------------
2021 2020 Change 2021 2020 Change
------------------------------------- ------ ------ ------- ------ ------ -------
Benchmark Prices
AECO ($/Mcf) 2.97 1.69 76% 2.59 1.51 72%
Brent ($/bbl) 73.23 43.32 69% 67.97 42.64 59%
West Texas Intermediate ($/bbl) 70.54 40.92 72% 65.05 38.20 70%
------------------------------------- ------ ------ ------- ------ ------ -------
Realized Prices
------------------------------------- ------ ------ ------- ------ ------ -------
Natural gas, net of transportation
($/Mcf) 2.90 2.18 33% 2.98 1.67 78%
Natural gas liquids ($/bbl) 56.03 37.54 190% 52.56 25.16 179%
Crude oil, net of transportation
($/bbl) 63.87 13.07 389% 61.31 38.18 61%
------------------------------------- ------ ------ ------- ------ ------ -------
Corporate average, net of transport
($/boe)(1) 52.21 14.24 285% 50.43 33.45 54%
------------------------------------- ------ ------ ------- ------ ------ -------
(1) Non-IFRS measures - see "Non-IFRS Measures" section within
the MD&A
The Company also continued to realize strong operating netbacks,
as summarized below.
Operating Netbacks
Three months ended Nine months ended
September 30 September 30
2021 2020 2021 2020
---------------------------------- --------- ---------- --------- ---------
Natural Gas ($/Mcf)
Revenue, net of transportation
expense $2.90 $2.18 $2.98 $1.67
Royalties (0.37) (0.20) (0.31) (0.16)
Operating expenses (1.18) (0.92) (1.60) (1.15)
---------------------------------- --------- ---------- --------- ---------
Natural Gas operating netback(1) $1.35 $1.06 $1.07 $0.36
---------------------------------- --------- ---------- --------- ---------
Crude oil ($/bbl)
Revenue, net of transportation
expense $63.87 $13.07 $61.31 $38.18
Royalties (5.91) 20.69 (6.90) (1.82)
Operating expenses (20.37) (281.74) (20.12) (29.02)
---------------------------------- --------- ---------- --------- ---------
Crude Oil operating netback(1) $37.59 ($247.98) $34.29 $7.34
---------------------------------- --------- ---------- --------- ---------
Corporate ($/boe)
Revenue, net of transportation
expense $52.21 $14.24 $50.43 $33.45
Royalties (4.94) 2.66 (5.61) (1.66)
Operating expenses (16.54) (53.04) (17.09) (25.10)
---------------------------------- --------- ---------- --------- ---------
Corporate Operating netback
(1) $30.73 ($36.14) $27.73 $6.68
---------------------------------- --------- ---------- --------- ---------
(1) Non-IFRS measure
The Company experienced an increase in operating netbacks during
Q3 2021 as compared to Q2 2021, increasing to $30.73/boe in Q3 2021
from $22.37/boe in Q2 2021. The increase in operating netbacks on a
sequential quarterly basis is attributable to: (i) higher Brent
crude and AECO natural gas prices, which resulted in higher
revenues per boe of production sold, and (ii) lower operating
expenses associated with the Company's production, which decreased
to $16.54/boe during Q3 2021 from $24.58/boe during Q2 2021.
The Company also experienced an increase in operating netbacks
during Q3 2021 as compared to Q3 2020, increasing to $30.73/boe in
Q3 2021 from ($36.14)/boe in Q3 2020. The increase in operating
netbacks on a year-over-year quarterly basis is likewise
attributable to: (i) higher Brent crude and AECO natural gas
prices, which resulted in higher revenues per boe of production
sold, and (ii) lower operating expenses associated with the
Company's production, which decreased to $16.54/boe during Q3 2021
from $53.04/boe during Q3 2020.
The Company did not incur material capital expenditures during
Q3 2021. At the end of Q3 2021 the Company had a positive working
capital position of $0.8 million, and a cash position of $5.5
million.
POST-PERIOD EVENTS AND BUSINESS UPDATE
- AIM ADMISSION AND FUNDRAISING
On October 20, 2021, the Company announced that it had
conditionally raised approximately GBP8.8 million (C$15 million),
through a placing and subscription for new common shares with new
investors, Canacol Energy Ltd., and executive management (together,
the "Fundraising"), in conjunction with admission of the Company's
common shares to trading on AIM on October 25,2021. The Company's
common shares continue to also trade on the TSX Venture
Exchange.
The Fundraising consisted of the placement and subscription of
140,949,545 new common shares at an issue price of GBP0.0625
(C$0.106125) per new common share. The Company's executive
management invested approximately C$1.41 million and Canacol Energy
Ltd. participated in the subscription to hold 19.9% of the enlarged
share capital. Investors received one warrant for every two new
common shares, exercisable at GBP0.09 (C$0.15282) per new common
share for 24 months from the AIM admission date (October 25, 2021).
The net proceeds of the Fundraising, together with the Company's
existing funds, are expected to be used to drill two wells at Rio
Cravo Este, and will also be deployed in drilling the Carrizales
Norte-1 exploration well.
- RESULT OF PRIVATE PLACEMENT
The Company is also pleased to announce that it has successfully
raised C$395,375 on a non-brokered private placement basis through
the issuance of 3,765,476 new common shares on the same terms as
the Fundraising . Investors will receive one warrant for every two
new common shares subscribed, exercisable for 24 months from the
closing date.
Arrow intends to use the funds raised from the non-brokered
private placement to be applied towards the work programme, as set
out above and detailed in the Company's announcement of October 25,
2021.
Closing of the non-brokered private placement is subject to
certain customary conditions, including the receipt of all
necessary regulatory approvals, including the approval of the TSX
Venture Exchange. All securities issued under the non-brokered
private placement will be subject to a statutory hold period of
four months plus a day following the date of closing. In connection
with the non-brokered private placement Arrow is also issuing
117,200 new common shares and paid C$12,306 in cash, as payment of
a finders' fee.
Application has been made to the London Stock Exchange for the
3,882,676 new common shares to be admitted to trading on AIM
("Admission"), and Admission is expected to occur on or around
November 26, 2021. The new common shares will, upon issue, rank
pari passu with the existing common shares of the Company, save in
respect of the hold period detailed above. Following Admission, for
the purposes of the Disclosure Guidance and Transparency Rules, the
total number of voting rights in the Company will be 213,506,823.
This figure may be used by shareholders as the denominator for the
calculations by which they determine if they are required to notify
their interest in, or a change of their interest in, the Company
under the FCA's Disclosure Guidance and Transparency Rules.
- BUSINESS UPDATE
The planned tie-in of behind-pipe natural gas from the 3-26 Well
located at West Pepper, Alberta, continues to proceed on-time and
on-budget. The Company currently expects production from the 3-26
Well to commence during the first half of December 2021.
The Company is continuing to progress various activities
associated with the planned drilling of the next well on the Tapir
Block in Colombia, being the RCE-2 well, and expects to provide
further updates to the market in due course.
APPOINTMENT OF JOINT BROKER
Arrow is pleased to announce the appointment of Auctus Advisors
LLP as joint corporate broker with immediate effect.
WEBCAST OF INTERIM RESULTS AND MANAGEMENT Q&A
The Company is providing a webcast presentation and management
Q&A session in connection with its interim results, available
to all its stakeholders at the following web address:
https://www.lsegissuerservices.com/spark/ARROWEXPLORATIONCORP/events/ecb1232a-30f5-43bb-8015-df6fb218dcfe
The webcast will be accessible via the link above and will start
at 14.30 GMT / 09.30 EST / 07.30 MST on November 24, 2021.
For further Information, contact:
Arrow Exploration
Marshall Abbott, CEO +1 403 651 5995
Max Satel, EVP Corporate Development
& Investor Relations +1 416 904 2258
Arden Partners (Joint Broker and
Nominated Adviser)
Ruari McGirr / Richard Johnson
(Corporate) +44 (0)20 7614 5900
Seb Wykeham / Simon Johnson (Broking)
Auctus Advisors (Joint Broker)
Jonathan Wright (Corporate) + 44 (0)7711 627449
Rupert Holdsworth Hunt (Broking)
Camarco (Financial PR)
James Crothers +44 (0)20 3781 8331
Rebecca Waterworth
Billy Clegg
About Arrow Exploration Corp.
Arrow Exploration Corp. (operating in Colombia via a branch of
its 100% owned subsidiary Carrao Energy S.A.) is a publicly-traded
company with a portfolio of premier Colombian oil assets that are
under-exploited, under-explored and offer high potential growth.
The Company's business plan is to expand oil production from some
of Colombia's most active basins, including the Llanos, Middle
Magdalena Valley (MMV) and Putumayo Basin. The asset base is
predominantly operated with high working interests, and the
Brent-linked light oil pricing exposure combines with low royalties
to yield attractive potential operating margins. Arrow's 50%
interest in the Tapir Block is contingent on the assignment by
Ecopetrol SA of such interest to Arrow. Arrow's seasoned team is
led by a hands-on executive team supported by an experienced board.
Arrow is listed on the AIM market of the London Stock Exchange and
on TSX Venture Exchange under the symbol "AXL".
Forward-looking Statements
This news release contains certain statements or disclosures
relating to Arrow that are based on the expectations of its
management as well as assumptions made by and information currently
available to Arrow which may constitute forward-looking statements
or information ("forward-looking statements") under applicable
securities laws. All such statements and disclosures, other than
those of historical fact, which address activities, events,
outcomes, results or developments that Arrow anticipates or expects
may, could or will occur in the future (in whole or in part) should
be considered forward-looking statements. In some cases,
forward-looking statements can be identified by the use of the
words "continue", "expect", "opportunity", "plan", "potential" and
"will" and similar expressions. The forward-looking statements
contained in this news release reflect several material factors and
expectations and assumptions of Arrow, including without
limitation, Arrow's evaluation of the impacts of COVID-19, the
potential of Arrow's Colombian and/or Canadian assets (or any of
them individually), the prices of oil and/or natural gas, and
Arrow's business plan to expand oil and gas production and achieve
attractive potential operating margins. Arrow believes the
expectations and assumptions reflected in the forward-looking
statements are reasonable at this time but no assurance can be
given that these factors, expectations and assumptions will prove
to be correct.
The forward-looking statements included in this news release are
not guarantees of future performance and should not be unduly
relied upon. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause
actual results or events to differ materially from those
anticipated in such forward-looking statements. The forward-looking
statements contained in this news release are made as of the date
hereof and the Company undertakes no obligations to update publicly
or revise any forward-looking statements, whether as a result of
new information, future events or otherwise, unless so required by
applicable securities laws.
Neither the TSX-V nor its Regulation Services Provider (as that
term is defined in the policies of the TSX-V) accepts
responsibility for the adequacy or accuracy of this release.
Arrow Exploration Corp.
MANAGEMENT's DISCUSSION AND ANALYSIS
three AND NINE months ended September 30, 2021
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") as
provided by the management of Arrow Exploration Corp. ("Arrow" or
the "Company"), is dated as of August 27, 2021 and should be read
in conjunction with Arrow's condensed consolidated financial
statements (unaudited) and related notes for the Nine and three
months ended September 30, 2021 and 2020. Additional information
relating to Arrow is available under Arrow's profile on
www.sedar.com , including Arrow's Audited Consolidated Financial
Statements (the "Annual Financial Statements") for the year ended
December 31, 2020 and 2019.
Advisories
Basis of Presentation
The condensed consolidated financial statements have been
prepared in accordance with International Financial Reporting
Standards ("IFRS"), and all amounts herein are expressed in United
States dollars, unless otherwise noted, and all tabular amounts are
expressed in United States dollars, unless otherwise noted.
Additional information for the Company may be found on SEDAR at
www.sedar.com.
Advisory Regarding Forward--Looking Statements
This MD&A contains certain statements or disclosures
relating to Arrow that are based on the expectations of its
management as well as assumptions made by and information currently
available to Arrow which may constitute forward-looking statements
or information ("forward-looking statements") under applicable
securities laws. All such statements and disclosures, other than
those of historical fact, which address activities, events,
outcomes, results or developments that Arrow anticipates or expects
may, could or will occur in the future (in whole or in part) should
be considered forward-looking statements. In some cases,
forward-looking statements can be identified by the use of the
words "believe", "continue", "could", "expect", "likely", "may",
"outlook", "plan", "potential", "will", "would" and similar
expressions. In particular, but without limiting the foregoing,
this MD&A contains forward-looking statements pertaining to the
following: the COVID-19 pandemic and its impact; tax liability;
capital management strategy; capital structure; credit facilities
and other debt; performance by Canacol (as defined herein) and the
Company in connection with the Note (as defined herein) and letters
of credit; Arrow's costless collar structure; Arrow's interest in
the OBC Pipeline (as defined herein) and the consequences thereof;
cost reduction initiatives; potential drilling on the Tapir block;
capital requirements; expenditures associated with asset retirement
obligations; future drilling activity and the development of the
Rio Cravo Este structure on the Tapir Block. Statements relating to
"reserves" and "resources" are deemed to be forward-looking
information, as they involve the implied assessment, based on
certain estimates and assumptions, that the reserves and resources
described exist in the quantities predicted or estimated and can be
profitably produced in the future.
The forward-looking statements contained in this MD&A
reflect several material factors and expectations and assumptions
of Arrow including, without limitation: current and anticipated
commodity prices and royalty regimes; the impact and duration of
the COVID-19 pandemic; the financial impact of Arrow's costless
collar structure; availability of skilled labour; timing and amount
of capital expenditures; future exchange rates; commodity prices;
the impact of increasing competition; general economic conditions;
availability of drilling and related equipment; receipt of partner,
regulatory and community approvals; royalty rates; future operating
costs; effects of regulation by governmental agencies;
uninterrupted access to areas of Arrow's operations and
infrastructure; recoverability of reserves; future production
rates; timing of drilling and completion of wells; pipeline
capacity; that Arrow will have sufficient cash flow, debt or equity
sources or other financial resources required to fund its capital
and operating expenditures and requirements as needed; that Arrow's
conduct and results of operations will be consistent with its
expectations; that Arrow will have the ability to develop its oil
and gas properties in the manner currently contemplated; current
or, where applicable, proposed industry conditions, laws and
regulations will continue in effect or as anticipated; that the
estimates of Arrow's reserves and production volumes and the
assumptions related thereto (including commodity prices and
development costs) are accurate in all material respects; that
Arrow will be able to obtain contract extensions or fulfil the
contractual obligations required to retain its rights to explore,
develop and exploit any of its undeveloped properties; and other
matters.
Arrow believes the material factors, expectations and
assumptions reflected in the forward-looking statements are
reasonable at this time but no assurance can be given that these
factors, expectations and assumptions will prove to be correct. The
forward-looking statements included in this MD&A are not
guarantees of future performance and should not be unduly relied
upon.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or
events to differ materially from those anticipated in such
forward-looking statements including, without limitation: the
impact and duration of the COVID-19 pandemic; the impact of general
economic conditions; volatility in commodity prices; industry
conditions including changes in laws and regulations including
adoption of new environmental laws and regulations, and changes in
how they are interpreted and enforced; competition; lack of
availability of qualified personnel; the results of exploration and
development drilling and related activities; obtaining required
approvals of regulatory authorities; counterparty risk; risks
associated with negotiating with foreign governments as well as
country risk associated with conducting international activities;
commodity price volatility; fluctuations in foreign exchange or
interest rates; environmental risks; changes in income tax laws or
changes in tax laws and incentive programs; changes to pipeline
capacity; ability to secure a credit facility; ability to access
sufficient capital from internal and external sources; risk that
Arrow's evaluation of its existing portfolio of development and
exploration opportunities is not consistent with future results;
that production may not necessarily be indicative of long term
performance or of ultimate recovery; and certain other risks
detailed from time to time in Arrow's public disclosure documents
including, without limitation, those risks identified in Arrow's
2018 AIF, a copy of which is available on Arrow's SEDAR profile at
www.sedar.com. Readers are cautioned that the foregoing list of
factors is not exhaustive and are cautioned not to place undue
reliance on these forward-looking statements.
Non--IFRS Measures
The Company uses non-IFRS measures to evaluate its performance
which are measures not defined in IFRS. Working capital, funds flow
from operations, realized prices, operating netback, adjusted
EBITDA, and net debt as presented do not have any standardized
meaning prescribed by IFRS and therefore may not be comparable with
the calculation of similar measures for other entities. The Company
considers these measures as key measures to demonstrate its ability
to generate the cash flow necessary to fund future growth through
capital investment, and to repay its debt, as the case may be.
These measures should not be considered as an alternative to, or
more meaningful than net income (loss) or cash provided by
operating activities or net loss and comprehensive loss as
determined in accordance with IFRS as an indicator of the Company's
performance. The Company's determination of these measures may not
be comparable to that reported by other companies.
Working capital is calculated as current assets minus current
liabilities; funds from operations is calculated as cash flows from
(used in) operating activities adjusted to exclude settlement of
decommissioning obligations and changes in non-cash working capital
balances; realized price is calculated by dividing gross revenue by
gross production, by product, in the applicable period; operating
netback is calculated as total natural gas and crude revenues minus
royalties, transportation costs and operating expenditures;
adjusted EBITDA is calculated as net loss adjusted for interest,
income taxes, depreciation, depletion, amortization and other
similar non-recurring or non-cash charges; and net debt is defined
as the principal amount of its outstanding debt, less working
capital items.
The Company also presents funds from operations per share,
whereby per share amounts are calculated using weighted- average
shares outstanding consistent with the calculation of net loss and
comprehensive loss per share.
A reconciliation of the non-IFRS measures is included as
follows:
Three months Nine months Three months
ended September ended September ended September
(in United States dollars) 30, 2021 30, 2021 30, 2020
----------------------------------------------- ----------------- ----------------- -----------------
Net loss (21,781) (1,266,503) (1,390,746)
Add/(subtract):
Share based payments 224,204 (326,106) 442,145
Financing costs:
Accretion on decommissioning obligations 33,678 98,647 157,518
Interest 173,807 551,494 (682,444)
Other 76,111 122,574 67,092
Depreciation and depletion 507,412 1,111,124 68,460
Income taxes, current and deferred (27,197) (27,197) 247,000
Adjusted EBITDA (1) 966,234 264,032 (1,090,974)
Cash flows provided by operating activities 1,115,071 (3,583,853) 147,218
Minus - Changes in non--cash working
capital balances:
Trade and other receivables (1,078,909) (1,489,818) (394,149)
Restricted cash (6,376) (262,489) -
Taxes receivable (119,154) (40,617) 104,005
Deposits and prepaid expenses (3,732) 131,315 (98,488)
Inventory 172,316 355,011 83,348
Accounts payable and accrued liabilities 796,405 5,147,955 (937,272)
Funds flow used in operations (1) 875,621 257,504 (1,095,338)
(1) Non-IFRS measures
The term barrel of oil equivalent ("boe") is used in this
MD&A. Boe may be misleading, particularly if used in isolation.
A boe conversion ratio of 6 thousand cubic feet ("Mcf") of natural
gas to one barrel of oil ("bbl") is used in the MD&A. This
conversion ratio of 6:1 is based on an energy equivalency
conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead.
FINANCIAL AND OPERATING HIGHLIGHTS
Three months Nine months Three months
ended September ended September ended September
(in United States dollars, except 30, 2021 30, 2021 30, 2020
as otherwise noted)
--------------------------------------- ---------------------------- ----------------- ----------------------------
Total natural gas and crude oil
revenues, net of royalties 1,684,609 3,473,661 207,934
Funds flow from (used in) operations
(1) 875,621 257,504 (1,095,338)
Per share - basic ($) and diluted
($) 0.01 0.00 (0.02)
Net income (loss) (21,781) (1,266,503) (1,390,746)
Per share - basic ($) and diluted
($) (0.00) (0.02) (0.02)
Adjusted EBITDA (1) 966,234 264,032 (1,090,974)
Weighted average shares outstanding
- basic and diluted 68,674,602 68,674,602 68,674,602
Common shares end of period 68,674,602 68,674,602 68,674,602
Capital expenditures 148,528 230,480 146,584
Cash and cash equivalents 5,465,981 5,465,981 91,248
Current Assets 8,644,830 8,644,830 5,119,909
Current liabilities 7,861,123 7,861,123 16,206,286
Working capital (deficit) (1) 783,707 783,707 (11,086,377)
Long-term portion of restricted
cash (2) 485,263 485,263 441,284
Total assets 25,362,323 25,362,323 46,702,911
Operating
--------------------------------------- ---------------------------- ----------------- ----------------------------
Natural gas and crude oil production,
before royalties
Natural gas (Mcf/d) 501 419 532
Natural gas liquids (bbl/d) 11 6 7
Crude oil (bbl/d) 481 308 9
Total (boe/d) 575 384 104
Operating netbacks ($/boe) (1)
Natural gas ($/Mcf) 1.35 1.07 1.06
Crude oil ($/bbl) 37.59 34.29 ($247.98)
Total ($/boe) 30.73 27.73 ($36.14)
(1) Non-IFRS measures - see "Non-IFRS Measures" section within
this MD&A
(2) Long term restricted cash not included in working
capital
The Company
Arrow is a junior oil and gas company engaged in the
acquisition, exploration and development of oil and gas properties
in Colombia and Western Canada. The Company's shares trade on the
TSX Venture Exchange under the symbol AXL.
The Company and Arrow Exploration Ltd. entered into an
arrangement agreement dated September 1, 2018, as amended, whereby
the parties completed a business combination pursuant to a plan of
arrangement under the Business Corporations Act (Alberta) ("ABCA")
on September 28, 2018. Arrow Exploration Ltd. and Front Range's
then wholly-owned subsidiary, 2118295 Alberta Ltd., were
amalgamated to form Arrow Holdings Ltd., a wholly-owned subsidiary
of the Company (the "Arrangement"). On May 31, 2018, Arrow
Exploration Ltd. entered in a share purchase agreement, as amended,
with Canacol Energy Ltd. ("Canacol"), to acquire Canacol's
Colombian oil properties held by its wholly-owned subsidiary Carrao
Energy S.A. ("Carrao"). On September 27, 2018, Arrow Exploration
Ltd. closed the agreement with Canacol.
On May 31, 2018, Arrow Exploration Ltd., entered into a purchase
and sale agreement to acquire a 50% beneficial interest in a
contract entered into with Ecopetrol S.A. pertaining to the
exploration and production of hydrocarbons in the Tapir block from
Samaria Exploration & Production S.A. ("Samaria"). On September
27, 2018, Arrow Exploration Ltd. closed the agreement with Samaria.
As at September 20, 2021 the Company held an interest in Nine oil
blocks in Colombia and oil and natural gas leases in seven areas in
Canada as follows:
Gross Acres Working Interest Net Acres
COLOMBIA
Tapir Operated 65,125 50% 32,563
Oso Pardo Operated 672 100% 672
Ombu Non-operated 56,482 10% 5,648
COR-39 Operated 95,111 100% 95,111
Los Picachos Non-operated 52,772 37.5% 19,790
Macaya Non-operated 195,255 37.5% 73,221
Total Colombia 465,417 227,005
CANADA
Ansell Operated 640 100% 640
Chicken Non-operated 1,280 30% 384
Fir Non operated 7,680 32% 2,457
Penhold Non-operated 480 13% 61
Pepper Operated 24,320 99% 24,000
Wapiti Non-operated 7,040 23% 1,600
Total Canada 31,840 25,661
------------------------------------------ ----------------- ---------------------- ---------------
TOTAL 497,257 252,666
------------------------------------------ ----------------- ---------------------- ---------------
The Company's primary producing assets are located in Colombia
in the Tapir, Oso Pardo and Ombu blocks, and in Canada at Fir,
Alberta.
Llanos Basin
Within the Llanos Basin, the Company is engaged in the
exploration, development and production of oil within the Tapir
block. On September 10, 2019, the Company announced a discovery at
its Rio Cravo Este-1 ("RCE-1") exploration well on the Tapir
block.
In the Llanos Basin most oil accumulations are associated with
three-way dip closure against NNE-SSW trending normal faults and
can have pay within multiple reservoirs. Effective exploration for
this play requires good quality 3D seismic data. The Tapir block
contain large areas not yet covered by 3D seismic, and in
Management's opinion offer substantial exploration upside.
Middle Magdalena Valley ("MMV") Basin
Arrow's Oso Pardo field is located in the MMV Basin. In general,
fields within the basin are more structurally complex than in the
Llanos basin but have the potential for thicker oil columns and
significant oil in place.
Oso Pardo Field
The Oso Pardo Field is located in the Santa Isabel Block in the
MMV Basin. It is a 100% owned property operated by the Company. The
Oso Pardo field is located within a Production Licence covering 672
acres. Three wells have been drilled to date within the License
area.
Ombu E&P Contract - Capella Conventional Heavy Oil
Discovery
The Caguan Basin covers an area of approximately 60,000 km(2)
and lies between the Putumayo and Llanos Basins. The primary
reservoir target is the Upper Eocene aged Mirador formation. The
Capella structure is a large, elongated northeast-southwest
fault-related anticline, with approximately 17,500 acres in closure
at the Mirador level. The field is located approximately 250 km
away from the nearest offloading station at Neiva, where production
from Capella is trucked.
The Capella No. 1 discovery well was drilled in July 2008 and
was followed by a series of development wells. The Company earned a
10% working interest in the Ombu E&P Contract by paying 100% of
all activities associated with the drilling, completion, and
testing of the Capella No. 1 well.
Fir, Alberta
The Company has an average non-operated 32% WI in 12 gross (3.84
net) sections of oil and natural gas rights and 17 gross (4.5 net)
producing natural gas wells at Fir. The wells produce raw natural
gas into the Cecilia natural gas plant where it is processed.
Three months ended September 30, 2021 Financial and Operational
Highlights
-- For the three months ended September 30, 2021, Arrow recorded
$1,684,609 in revenues (net of royalties) on crude oil sales of
26,280 bbls, 446 bbls of natural gas liquids ("NGL's") and 46,057
Mcf of natural gas sales
-- Funds from operations of $815,621
-- Adjusted EBITDA was $966,234
-- The Company recorded a net loss of $21,781
Results of Operations
The Company has progressively increased its production due to
resuming production in areas previously affected by failures in
production equipment, social instability, and the Covid-19
pandemic. The Company's main streams of revenues are its RCE-1 well
in the Tapir block and its Oso Pardo wells.
Average Production by Property
Average Production Boe/d YTD 2021 Q3 2021 Q2 2021 Q1 2021 Q3 2020
-------------------------- --------- -------- -------- -------- --------
LLA-23 - - - - 1
Oso Pardo 53 137 20 - -
Ombu (Capella) 98 193 97 - -
Rio Cravo Este (Tapir) 157 151 147 174 8
Total Colombia 308 481 264 174 9
Fir, Alberta 76 94 67 68 96
-------------------------- --------- -------- -------- -------- --------
TOTAL (Boe/d) 384 575 331 242 105
-------------------------- --------- -------- -------- -------- --------
For the nine and three months ended September 30, 2021, the
Company's average production was 384 boe/d and 575 boe/d,
respectively (2020: 1,159 and 569 boe/d) which consisted of crude
oil production in Colombia at 481 and 308 bbl/d (2020: 9 and 470
bbl/d), and natural gas production of 501 and 419 Mcf/d (2020: 532
and 557 Mcf/d) and minor amounts of natural gas liquids from the
Company's Canadian properties. During the nine and three months
ended September 30, 2021, in Colombia production decreased in the
Tapir block, and the Oso Pardo and Ombu/Capella blocks increased
their daily production when compared to previous quarters, since
they were producing for the full quarter.
Average Daily Natural Gas and Oil Production and Sales
Volumes
Three months ended Nine months ended
September 30 September 30
----------------------------------------
2021 2020 2021 2020
---------------------------------------- ------------ ------- ----------- -------
Natural Gas (Mcf/d)
Natural gas production 501 545 419 523
---------------------------------------- ------------ ------- ----------- -------
Natural gas sales 501 545 419 523
---------------------------------------- ------------ ------- ----------- -------
Realized Contractual Natural Gas Sales 501 545 419 523
---------------------------------------- ------------ ------- ----------- -------
Crude Oil (bbl/d)
Crude oil production 481 9 308 470
Inventory movements and other (195) 5 (100) (8)
---------------------------------------- ------------ ------- ----------- -------
Crude Oil Sales 286 14 208 462
---------------------------------------- ------------ ------- ----------- -------
Corporate
Natural gas production (boe/d) 83 89 70 93
Natural gas liquids(bbl/d) 11 7 6 6
Crude oil production (bbl/d) 481 9 308 470
---------------------------------------- ------------ ------- ----------- -------
Total production (boe/d) 575 105 384 569
Inventory movements and other (boe/d) (195) 5 (100) (8)
---------------------------------------- ------------ ------- ----------- -------
Total Corporate Sales (boe/d) 380 110 284 561
---------------------------------------- ------------ ------- ----------- -------
During the nine and three months ended September 30, 2021 the
majority of production was attributed to Colombia where the Company
has two operated properties: Oso Pardo and Rio Cravo Este, and one
non-operated property, Ombu. In Canada, the Company has two
operated and two non-operated properties located in the province of
Alberta at Fir, Pepper, Harley and Wapiti.
Natural Gas and Oil Revenues
Three months ended Nine months ended
September 30 September 30
-------------------------------------
2021 2020 2021 2020
------------------------------------- ----------- ---------- ----------- -----------
Natural Gas
Natural gas revenues 133,413 125,082 341,197 255,307
NGL revenues 48,661 22,301 88,363 40,623
Royalties (20,655) (11,350) (42,986) (24,705)
------------------------------------- ----------- ---------- ----------- -----------
Revenues, net of royalties 161,419 136,033 386,574 271,225
------------------------------------- ----------- ---------- ----------- -----------
Oil
Oil revenues 1,678,526 27,838 3,478,459 4,915,399
Royalties (155,336) 44,063 (391,372) (234,199)
------------------------------------- ----------- ---------- ----------- -----------
Revenues, net of royalties 1,523,191 71,901 3,087,087 4,681,200
------------------------------------- ----------- ---------- ----------- -----------
Corporate
Natural gas revenues 133,413 125,082 341,197 255,307
NGL revenues 48,661 22,301 88,363 40,623
Oil revenues 1,678,526 27,838 3,478,459 4,915,399
------------------------------------- ----------- ---------- ----------- -----------
Total revenues 1,860,600 175,221 3,908,019 5,211,329
Royalties (175,991) 32,713 (434,358) (258,904)
------------------------------------- ----------- ---------- ----------- -----------
Natural gas and crude oil revenues,
net of royalties, as reported 1,684,609 207,934 3,473,661 4,952,425
------------------------------------- ----------- ---------- ----------- -----------
Revenue for the three and nine months ended September 30, 2021
was $1,684,609 and $3,473,661, respectively, net of royalties,
which represents an increase and a decrease of 710% and 30%,
respectively, when compared to 2020. These variances are mainly due
the sale of LLA-23 and the resumption of production in Oso Pardo
and Ombu.
Average Benchmark and Realized Prices
Three months ended Nine months ended
September 30 September 30
-------------------------------------
2021 2020 Change 2021 2020 Change
------------------------------------- ------ ------ ------- ------ ------ -------
Benchmark Prices
AECO ($/Mcf) 2.97 1.69 76% 2.59 1.51 72%
Brent ($/bbl) 73.23 43.32 69% 67.97 42.64 59%
West Texas Intermediate ($/bbl) 70.54 40.92 72% 65.05 38.20 70%
------------------------------------- ------ ------ ------- ------ ------ -------
Realized Prices
------------------------------------- ------ ------ ------- ------ ------ -------
Natural gas, net of transportation
($/Mcf) 2.90 2.18 33% 2.98 1.67 78%
Natural gas liquids ($/bbl) 56.03 37.54 190% 52.56 25.16 179%
Crude oil, net of transportation
($/bbl) 63.87 13.07 389% 61.31 38.18 61%
------------------------------------- ------ ------ ------- ------ ------ -------
Corporate average, net of transport
($/boe)(1) 52.21 14.24 285% 50.43 33.45 54%
------------------------------------- ------ ------ ------- ------ ------ -------
The Company realized a price of $52.21 and $50.43 per boe during
the three and nine months ended September 30, 2021 (2020: $14.24
and $33.45 per boe, respectively) as oil and natural gas prices
have significantly improved when compared to 2020, when pressures
from large-producing countries and the Covid-19 pandemic
("Covid-19") were affecting commodity prices . The Company receives
Brent referenced pricing for its crude oil. In Canada, natural gas
prices have experienced a consistent improvement over the past
several months.
Operating Expenses
Three months ended Nine months ended
September 30 September 30
---------------------------
2021 2020 2021 2020
--------------------------- ---------- --------- ---------- ----------
Natural gas & NGL's 54,227 52,797 183,091 175,440
Crude oil 535,341 599,877 1,141,649 3,735,786
--------------------------- ---------- --------- ---------- ----------
Total operating expenses 589,568 652,674 1,324,740 3,911,226
--------------------------- ---------- --------- ---------- ----------
Natural gas ($/Mcf) $1.18 $0.92 $1.60 $1.15
Crude oil ($/bbl) $20.37 $281.74 $20.12 $29.02
Corporate ($/boe)(1) $16.54 $53.04 $17.09 $25.10
--------------------------- ---------- --------- ---------- ----------
(1)Non-IFRS measure
During the three and nine months ended September 30, 2021 and
2020, Arrow incurred operating expenses of $589,568 and $1,324,740,
respectively, at an average cost of $16.54 and $17.09 per boe.
Operating expenses have been consistent with previous quarters in
2021, including a pump replacement for the Morsa-1 well in the Oso
Pardo field, and together with an increase in lease cost in the
Canadian operations.
Operating Netbacks
Three months ended Nine months ended
September 30 September 30
2021 2020 2021 2020
---------------------------------- --------- ---------- --------- ---------
Natural Gas ($/Mcf)
Revenue, net of transportation
expense $2.90 $2.18 $2.98 $1.67
Royalties (0.37) (0.20) (0.31) (0.16)
Operating expenses (1.18) (0.92) (1.60) (1.15)
---------------------------------- --------- ---------- --------- ---------
Natural Gas operating netback(1) $1.35 $1.06 $1.07 $0.36
---------------------------------- --------- ---------- --------- ---------
Crude oil ($/bbl)
Revenue, net of transportation
expense $63.87 $13.07 $61.31 $38.18
Royalties (5.91) 20.69 (6.90) (1.82)
Operating expenses (20.37) (281.74) (20.12) (29.02)
---------------------------------- --------- ---------- --------- ---------
Crude Oil operating netback(1) $37.59 ($247.98) $34.29 $7.34
---------------------------------- --------- ---------- --------- ---------
Corporate ($/boe)
Revenue, net of transportation
expense $52.21 $14.24 $50.43 $33.45
Royalties (4.94) 2.66 (5.61) (1.66)
Operating expenses (16.54) (53.04) (17.09) (25.10)
---------------------------------- --------- ---------- --------- ---------
Corporate Operating netback
(1) $30.73 ($36.14) $27.73 $6.68
---------------------------------- --------- ---------- --------- ---------
(1) Non-IFRS measure
General and Administrative Expenses (G&A)
Three months ended Nine months ended
September 30 September 30
2021 2020 2021 2020
----------------------------------- ---------- --------- ---------- ----------
General & administrative expenses 898,299 785,641 3,131,644 2,990,705
Less: G&A capitalized - - - -
G&A recovered from 3(rd) parties (58,352) - - -
----------------------------------- ---------- --------- ---------- ----------
Total operating overhead recovery - - - -
----------------------------------- ---------- --------- ---------- ----------
Total G&A 839,947 785,641 3,131,644 2,990,705
----------------------------------- ---------- --------- ---------- ----------
Cost per boe $23.57 $63.85 $40.41 $19.20
For the three and nine months ended September 30, 2021, G&A
expenses totaled $839,947 and $3,131,644, respectively. When
compared to 2020, these increases were mainly represented by
increases in personnel compensation, offset by lower legal fees and
reduction of office expenses.
Financing Costs
Three months ended Nine months ended
September 30 September 30
2021 2020 2021 2020
----------------------------------- -------- ----------- --------- ---------
Financing expense paid or payable 249,918 (615,352) 674,068 (461)
Non-cash financing costs 33,678 157,518 98,647 462,402
----------------------------------- -------- ----------- --------- ---------
Net financing costs 283,596 (457,834) 772,715 461,941
----------------------------------- -------- ----------- --------- ---------
The finance expense paid or payable represents interest on the
$6.1 million promissory note due to Canacol, as partial payment for
the acquisition of Carrao, which bears interest at 15% per annum,
and fees associated with financing standby letters of credit (SBLC)
on certain of the Company's Colombian blocks, which have been
reduced in 2021 after the sale of LLA-23 and the cancellation of
the related SBLCs. The non-cash finance cost represents the
accretion expense of the present value of the decommissioning
obligation for the current period, which has been decreasing as the
result of properties sold.
Risk Management Contracts
Three months ended Nine months ended
September 30 September 30
2021 2020 2021 2020
------------ ------------------- ------------------- ---------------------------------- ---------------------------------
Realized
derivative
gain on
commodity
risk
management
contracts - - - 1,288,523
Unrealized - -
derivative - -
gain on
commodity
risk
management
contracts
------------ ------------------- ------------------- ---------------------------------- ---------------------------------
Total
income on
risk
management
activities - - - 1,288,523
------------ ------------------- ------------------- ---------------------------------- ---------------------------------
There was no risk management activities conducted by the Company
in 2021. During 2020, the Company entered into a 'costless collar'
commodity hedging agreement for a total of 15,000 barrels of oil
per month from January 1 to September 30, 2020. This agreement
provides a Brent-based floor price of $62 per barrel and a ceiling
price of $66.5 per barrel on 15,000 barrels of oil per month over
the aforementioned time period.
Share-based Payments
Three months ended Nine months
September 30 ended September
30
2021 2020 2021 2020
---------------------- ---------- --------- ----------- --------
Share-based Payments 224,204 442,145 (326,106) 263,614
---------------------- ---------- --------- ----------- --------
Share-based payments (income) for the three and nine months
ended September 30, 2021 totalled $224,204 and ($326,106),
respectively. During 2021 and 2020, a significant number of options
were cancelled due to resignations and terminations of option
holders, including executives, causing a reversal of expenses
recognized in previous periods. The share-based payments (income)
is the result of the progressive vesting of the options granted to
the Company's employees and consultants, net of cancellations and
forfeitures, according to the company's stock-based compensation
plan.
Depletion and Depreciation
Three months ended Nine months ended
September 30 September 30
2021 2020 2021 2020
---------------------------- ----------- -------- ---------- ----------
Depletion and depreciation 507,412 68,460 1,111,124 1,910,396
---------------------------- ----------- -------- ---------- ----------
Depletion and depreciation expense for three and nine months
ended September 30, 2021 totalled $507,412 and $1,111,124,
respectively. The Company uses the unit of production method and
proved plus probable reserves to calculate depletion expense and
changes are directly related to a higher quantity of crude and
natural gas produced during 2021 compared with 2020.
Impairment of Oil and Gas Properties
Three months ended Nine months ended
September 30 September 30
2021 2020 2021 2020
-------------------------------------- ----------- ---------- ------- ------------
Impairment of Oil and Gas Properties - - - 27,263,110
-------------------------------------- ----------- ---------- ------- ------------
As at March 31, 2020, the Company reviewed its cash-generating
unit's ("CGU") property and equipment and determined that there
were indicators of impairment present related to the decrease in
reserves. The company prepared estimates of both the value in use
and fair value less costs of disposal of its CGUs and it was
determined that carrying value of each CGU exceeded its recoverable
amount and, therefore, an impairment provision of $27,263,110 was
required.
Other expense (income)
Three months ended Nine months ended
September 30 September 30
2021 2020 2021 2020
------------------------ ----------- ---------- ------------ -----------
Other expense (income) (767,215) (85,154) (1,262,139) (108,947)
------------------------ ----------- ---------- ------------ -----------
The Company reported other income of $767,215 and $1,262,139 for
the three and nine months ended September 30, 2021, respectively.
The 2021 amount has been generated from the Company's ongoing
negotiations of accounts payable and debts with vendors, both in
Colombia and Canada, which have resulted in reductions of amounts
actually paid in cash to settle its liabilities.
Income Taxes
Three months ended Nine months ended
September 30 September 30
2021 2020 2021 2020
-------------------------------- ---------- --------- ---------- -------------
Current income tax (recovery) (27,197) - (27,197) (8,786)
Deferred income tax (recovery) - 247,000 - (7,303,000)
-------------------------------- ---------- --------- ---------- -------------
Total income tax expense (27,197) $247,000 (27,197) (7,311,786)
-------------------------------- ---------- --------- ---------- -------------
Due to the Company's tax losses available in Canada and
Colombia, it is expected that the Company will not generate current
income tax from its operations for the year 2021, other than a
minimum tax payable. During 2020, there were changes the Company's
deferred income tax liability mainly caused by the impairment
provision recorded during the three months ended March 31, 2020. In
making this determination, the Company considers all available
positive and negative evidence, including the reversal of all
existing temporary differences, projected future taxable income,
tax-planning strategies, and results of recent operations.
LIQUIDITY AND CAPITAL RESOURCES
Capital Management
The Company's objective is to maintain a capital base sufficient
to provide flexibility in the future development of the business
and maintain investor, creditor and market confidence. The Company
manages its capital structure and makes adjustments in response to
changes in economic conditions and the risk characteristics of the
underlying assets. The Company considers its capital structure to
include share capital, debt and working capital, excluding non-cash
items. In order to maintain or adjust the capital structure, from
time to time the Company may issue common shares or other
securities, sell assets or adjust its capital spending to manage
current and projected debt levels.
The Company had a net loss of $32,233,092 for the year 2020 and
had a working capital of $783,707 as at September 30, 2021. During
2020, oil and gas prices have been significantly depressed and the
global impact of the COVID-19 pandemic has fostered a great deal of
uncertainty for the future operations of the Company. The Company's
ability to continue as a going concern is dependent on management's
ability to identify additional sources of capital and to raise
sufficient resources to fund ongoing operating expenses and
commitments. There is no assurance these initiatives will be
successful in the future. These conditions indicate the existence
of material uncertainties that may cast significant doubt regarding
the applicability of the going concern assumption. These interim
condensed consolidated financial statements do not give effect to
adjustments that would be necessary to the carrying values and
classification of assets and liabilities should the Company be
unable to continue as a going concern. These adjustments could be
material.
The Company's working capital has been significantly improving
in 2021 due to sales of assets, improvement in commodity prices and
effective cash management. Additionally, the Company has been
admitted to trade its common shares in the London AIM market and
completed an initial fundraising of C$15 million (see subsequent
events). The net proceeds of this fundraising, together with the
Company's existing funds, are expected to be used to drill two
wells at Rio Cravo Este, and will also be deployed in drilling the
Carrizales Norte-1 exploration well.
On October 20, 2021, the Company announced that it has
conditionally raised approximately GBP8.8 million (C$15 million),
through a placing and subscription for new common shares with new
investors, Canacol Energy Ltd., and executive management (together,
the "Fundraising") and has published an AIM Admission Document in
connection with the admission of the enlarged share capital of the
Company to trading on the AIM Market of the London Stock Exchange
plc. The Fundraising consisted of the placement and subscription of
140,949,545 new common shares at an issue price of GBP0.0625
(C$0.106125) per new common share. The Company's executive
management invested approximately C$ 1.41 million and Canacol
participated in the subscription to hold 19.9% of the enlarged
share capital. Investors received one warrant for every two new
common shares, exercisable at C$0.15282 per new common share for 24
months from the AIM admission date (October 25, 2021). The net
proceeds of the Fundraising, together with the Company's existing
funds, are expected to be used to drill two wells at Rio Cravo
Este, and
will also be deployed in drilling the Carrizales Norte-1 exploration well .
On November 24, 2021, the Company announced that it has closed a
non-brokered private placement of C$395,375 for issuance of
3,882,676 new common shares.
As at September 30, 2021 the Company's net debt was calculated
as follows:
September 30,
2021
-------------------------------------------------------- ------------ ---------------------------------------
Current assets $ 8,644,830
Less:
Accounts payable and accrued liabilities (4,780,351)
Lease obligation - shot term (19,662)
Promissory Note (6,362,969)
----------------------------------------------------------------------------------------- --------------------
Net debt (1) $ (2,518,152)
---------------------------------------------------------------------- --------------- --------------------
(1) Non-IFRS measure
Working Capital
As at September 30, 2021 the Company's working capital was
calculated as follows:
September 30,
2021
--------------------------------------------------------- ------------ ---------------------------------------
Current assets:
Cash and restricted cash $ 5,465,981
Trade and other receivables 966,772
Taxes receivable 1,619,065
Other current assets 593,012
Less:
Accounts payable and accrued liabilities (4,780,351)
Lease obligation (19,662)
Promissory Note - Current portion (3,061,110)
Working capital (deficit) (1) $ 783,707
----------------------------------------------------------------------- --------------- --------------------
(1) Non-IFRS measure
Debt Capital
As of September 30, 2021, the Company had a $6.3 million in
outstanding debt in the form of a promissory note payable to
Canacol. The promissory note was issued to Canacol Energy Ltd.
("Canacol") as partial consideration in the acquisition of Carrao
Energy S.A. from Canacol. The promissory note bears interest at 15%
per annum, was initially due on January 28, 2019 and subsequently
extended to April 30, 2019, October 1, 2020 and April 1, 2021.
Arrow and Canacol entered into a third, fourth and fifth Amended
and Restated Promissory Notes in December 2019, March and August
2020, respectively.
In May 2021, a sixth and amended and restated promissory note
was agreed with Canacol which includes that the new principal
amount of the promissory note is $6,026,166 (including interest and
fees), which bears interest at an annual rate of 15%, and includes
the following repayment provisions:
- In the event that the Company does not complete a successful
equity financing of $12,000,000 or more by September 30, 2021, the
payment of the principal plus interest shall be made as
follows:
-- Two payments of $1,600,000 in cash due on July 30 and
December 30, 2022; and
-- Issuance of common shares of the Company on July 30, 2022 for
the remaining balance for an amount of shares resulting from
Canacol having less than 19.9%, with any remainder payable in
cash
- In the event that the Company completes a successful equity
financing of $12,000,000 or more by September 30, 2021, the payment
of the principal plus interest shall be made as follows:
-- One payment of $3,200,000 in cash due 15 days from the
financing closing date; and
-- At the discretion of the Company, the balance shall be paid
either in cash or by issuance of common shares of the Company for
an amount of shares resulting from Canacol having less than 19.9%,
and any remainder balance payable in cash.
The Company also commits to replace the letters of credit
currently guaranteed by Canacol and, Canacol commits to absorb the
Company's commitments and balances related to the OBC pipeline
dispute. The Company has granted a general security interest to
Canacol for the obligations under the Promissory Note which will be
subordinated to second position in the event the Company secures
additional financing.
On October 18, 2021, a seventh amended and restated promissory
note was entered into with Canacol which includes that the new
principal amount of the promissory note is $6,026,166, which bares
interest at an annual rate of 15%, and will be paid as follows:
- The amount of C$3,900,000 plus all Canacol's expenses in
connection with this amendment and related matters, shall be paid
not later than October 31, 2021;
- The 50% of the remaining principal and interest shall be paid
no later than December 31, 2022; and
- The remaining principal and interest shall be paid not later than June 20,2023
Also, provided the Company makes the payment due on October 31,
2021, Canacol agrees to forgive $800,000 assumed by Canacol for
excess pipeline shipping costs as a result of the settlement of the
OBC pipeline dispute. On October 27, 2021, the Company paid
C$3,900,000 to Canacol as stipulated in this seventh amendment.
Letters of Credit
As at September 30, 2021, the Company had obligations under
Letters of Credit ("LC's") outstanding totaling $5.2 million to
guarantee work commitments on exploration blocks and other
contractual commitments. Of the total, approximately $4 million has
been guaranteed by Canacol. Under an agreement with Canacol,
Canacol will continue to provide security for the LC's providing
that Arrow uses all reasonable efforts to replace the LC's. In the
event the Company fails to secure the renewal of the LC's
underlying the Company's Agencia Nacional de Hidrocarburos ("ANH")
guarantees, or any of them, the ANH could decide to cancel the
underlying E&P contract for a particular block, as applicable.
In this instance, the Company could risk losing its entire interest
in the applicable block, including all capital expended to date,
and could possibly also incur additional abandonment and
reclamation costs if applied by the ANH.
Current Outstanding Letters of Credit
Contract Beneficiary Issuer Type Amount
(US$) Renewal Date
-------------- ------------- ---------------- ------------- ---------- -------------
Tapir ECP Samaria Llanos Abandonment 52,898 December 26,
2021
SANTA ISABEL ANH Carrao Energy Abandonment 643,423 April 14,
SA Suc Col 2022
ANH Canacol and Financial 1,672,162 December 31,
Carrao Capacity 2021
CORE - ANH Canacol Compliance 2,400,000 December 31,
39 2021
OMBU ANH Carrao Energy Financial 436,300 April 14,
SA Suc Col Capacity 2022
-------------- ------------- ---------------- ------------- ---------- -------------
Total 5,204,783
Share Capital
As at September 30, 2021, the Company had 68,674,602 common
shares and 5,714,000 stock options outstanding.
CONTRACTUAL OBLIGATIONS
The following table provides a summary of the Company's cash
requirements to meet its financial liabilities and contractual
obligations existing at September 30, 2021:
Less
than
1
year 1-3 years Thereafter Total
------------------------ ----------------- -------------------------------------- ------------------------------- -------------------------------------
Promissory
Note $ - $ 6,135,132 $ - $ 6,135,132
Exploration
and
production
contracts - 17,800,000 - 17,800,000
------------------------ --------------------------------- ---------------------- ------------- ---------------- ------------- ----------------------
$ - $ 23,935,132 $ - $ 23,935,132
----------------- --------------------------------------- ---------------------- ------------- ---------------- ------------- ----------------------
Exploration and Production Contracts
The Company has entered into a number of exploration contracts
in Colombia which require the Company to fulfill work program
commitments and issue financial guarantees related thereto. In
aggregate, the Company has outstanding exploration commitments at
September 30, 2021 of $17.8 million. During 2019, the Company, in
conjunction with its partners, made application to cancel a further
$15.5 million in commitments on the Macaya and Los Picachos blocks.
This request was subsequently denied by the ANH. The remaining
commitments are expected to be satisfied by means of seismic work,
exploration drilling and farm-outs.
Oleoducto Bicentenario de Colombia ("OBC") Pipeline
The Company is party to an agreement with Canacol that entitles
it to a 0.5% interest in OBC, which owns a pipeline system intended
to link Llanos basin oil production to the Caño Limon oil pipeline
system in Colombia. This agreement was part of Arrow's acquisition
of Carrao from Canacol. The Company in conjunction with Canacol,
notified OBC to transfer title of the shares currently in the name
of Canacol to Arrow. The transfer requires approval by OBC which at
the date of this MD&A had not been received.
Canacol is currently in litigation with OBC in relation to ship
or pay obligations that were terminated by Canacol in July 2018
under force majeure. Under terms of the agreement, if the pipeline
has not been operational for a period greater than Nine months then
the ship or pay obligation may be cancelled.
On March 27, 2019, the court in charge of the case ruled in
favor of the OBC and opined that the obligations under the ship or
pay contract remains in force. Subsequently, on May 13, 2019,
Canacol filed an appeal at the State Council, a higher-level court
in the Colombian judiciary system, requesting annulment of this
ruling. Likewise, in July 2019, OBC has also started litigation
against Canacol for not honouring its ship or pay obligations under
the contract. Depending on the final outcome of this dispute, Arrow
may be required to satisfy past and future ship or pay
obligations.
Upon official transfer of ownership to Arrow and under the terms
of the OBC agreement, Arrow may be required to provide financial
support or guarantees for its proportionate equity interest in any
future debt financings or cash calls undertaken by OBC. At the same
time, Arrow would be entitled to dividends declared and paid by OBC
based on its 0.5% ownership interest.
During 2020 and 2021, there has been negotiations between the
parties involved in order to settle this case and settlement
agreements have been approved by courts. As a result, Arrow does
not have any current or future requirement to satisfy past and
future ship or pay obligations and has reversed its $658,654
accrual accordingly.
SUMMARY OF THREE MONTHS RESULTS
2021 2020 2019
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
------------ ----------- ------------ ------------ ------------- ------------- ------------- ------------
Oil and
natural
gas sales,
net
of royalties 1,684,609 941,620 847,432 368,140 207,934 896,011 3,848,478 5,585,531
Net income
(loss) (21,782) (734,317) (510,405) (7,953,001) (1,390,746) 3,168,919 (26,058,265) (2,089,036)
Income (loss)
per
share -
basic and
diluted (0.00) (0.01) (0.01) (0.12) (0.02) 0.05 (0.38) (0.02)
Working
capital
(deficit) 783,707 3,141,217 (2,659,690) (1,932,940) (11,086,377) (10,158,614) (2,711,756) (2,863,641)
Total assets 25,362,323 25,948,551 27,684,920 33,532,299 46,702,911 47,386,940 43,775,967 72,750,706
Net capital
expenditures 148,528 (15,378) 97,330 89,198 146,584 180,795 473,351 (171,138)
Average daily
production
(boe/d) 575 331 242 140 105 417 1,159 1,595
------------ ----------- ------------ ------------ ------------- ------------- ------------- ------------
Over the past quarters, the Company's oil and natural gas sales
have fluctuated due to changes in production, movements in the
Brent benchmark oil price and fluctuations in realized oil price
differentials. The Company's production levels in Colombia have
been variable, with increases driven by additional crude oil from
the RCE-1 well, partially offset by the sale of the Company's
interest in the VMM-2 and LLA-23 blocks, and natural declines on
mature blocks. Trends in the Company's net income (loss) are also
impacted most significantly by financing costs, income taxes,
depletion, depreciation and impairment of oil and gas properties,
gains and losses from risk management activities.
OUTSTANDING SHARE DATA
At October 25, 2021, the Company had the following securities
issued and outstanding:
Number Exercise Price Expiry Date
------------------------- ------------------------- ---------------------------- -------------------------
Common shares 209,624,169 n/a n/a
Warrants 70,474,769 CAD$ 0.15282 October 25,
2023
Stock options 1,050,000 CAD$ 1.15 October 22,
2028
Stock options 345,000 CAD$ 0.31 May 3, 2029
Stock options 1,200,000 CAD$ 0.05 March 20,
2030
Stock options 2,775,000 CAD$ 0.05 April 13,
2030
Stock options 344,000 CAD$ 0.05 Sept. 18,
2030
OUTLOOK
On January 30, 2020, the World Health Organization declared the
Coronavirus disease (COVID-19) outbreak a Public Health Emergency
of International Concern and, on March 10, 2020, declared it to be
a pandemic. Actions taken around the world to mitigate the spread
of COVID-19, combined with OPEC's initial plan to increase global
supply resulted in significant weakness and volatility in commodity
prices in early 2020. The simultaneous demand and supply shocks
have resulted in significant declines in product demand and pricing
in the latter part of the first quarter and throughout the second
and third quarter of 2020. Commodity prices began to recover in
late 2020 and continued that recovery in early 2021. Although it is
impossible to reliably estimate the impact of COVID-19, the
pandemic is anticipated to have material effects on the Company's
2021 financial results relative to 2020 and 2019.
In 2021 the Company is continuing to focus on improving its free
cash flow by optimizing its sources of funds and reducing operating
and administrative costs. During 2020, salaries, personnel benefits
and office costs continued to be reduced, and the Company has made
a significant improvement in operating costs and administrative
expenses since then.
Following the closing of a financing, as announced by the
Company on October 25, 2021, the Company is establishing plans for
drilling at least two follow-up wells at Rio Cravo Este in 2022,
subject to numerous factors such as rig availability , obtaining
partner approval, among others. The Company is also establishing
plans for drilling the Carrizales Norte-1 well on the Tapir
Block.
CRITICAL ACCOUNTING ESTIMATES
A summary of the Company's significant accounting policies is
contained in Note 3 of the audited consolidated financial
statements as at and for the years ended December 31, 2020 and
2019. These accounting policies are subject to estimates and key
judgements about future events, many of which are beyond Arrow's
control.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies is
included in of the audited consolidated financial statements as at
and for the years ended December 31, 2020 and 2019. These
accounting policies are consistent with those of the previous
financial year.
RISKS AND UNCERTAINTIES
The Company is subject to financial, business and other risks,
many of which are beyond its control and which could have a
material adverse effect on the business and operations of the
Company. Please refer to "Risk Factors" in the MD&A for the
year ended December 31, 2020 for a description of the financial,
business and other risk factors affecting the Company which are
available on SEDAR at www.sedar.com
Arrow Exploration Corp.
Interim Condensed Consolidated Financial Statements
September 30, 2021
In United States Dollars
(Unaudited)
Contents
Interim Condensed Consolidated Financial Statements
Management's Notice of No Auditor Review 2
Consolidated Statements of Financial Position 3
Consolidated Statements of Operations and
Comprehensive Loss 4
Consolidated Statements of Changes
in Shareholders' Equity
5
Consolidated Statements of Cash Flows 6
Notes to the Consolidated FinancialStatements 7 - 18
Notice of No Auditor Review of the Interim Condensed
Consolidated Financial Statements
as at and for the three months ended September 30, 2021
Under National Instrument 51-102, Part 4, subsection 4.3 (3)(a),
if an auditor has not performed a review of the interim condensed
consolidated financial statements, they must be accompanied by a
notice indicating that an auditor has not reviewed the financial
statements.
The accompanying unaudited interim condensed consolidated
financial statements of the Company have been prepared by and are
the responsibility of the Company's management.
The Company's independent auditor has not performed a review of
these financial statements in accordance with standards established
by the Chartered Professional Accountants of Canada for a review of
interim financial statements by an entity's auditor.
Arrow Exploration Corp.
Consolidated Statements of Financial Position
In United States Dollars
(Unaudited)
As at September December
30, 31,
Notes 2021 2020
Assets
Current
Cash $ 5,465,981 $ 11,473,204
Restricted cash 3 - 262,489
Trade and other receivables 4 966,772 2,456,590
Taxes receivable 5 1,619,065 1,659,683
Deposits and prepaid expenses 208,697 77,382
Inventory 384,315 29,304
8,644,830 15,958,652
Non-current assets
Restricted cash 3 485,263 460,283
Exploration and evaluation 6 6,961,667 6,961,667
Property and equipment 7 9,270,563 10,151,697
----------------------
Total Assets $ 25,362,323 $ 33,532,299
Liabilities
Current
Accounts payable and accrued
liabilities $ 4,780,351 $ 12,101,989
Lease obligation 9 19,662 17,279
Promissory note 8 3,061,110 5,772,324
----------------------
7,861,123 17,891,592
Non-current liabilities
Long-term debt 10 31,396 31,416
Lease obligation 9 39,493 53,563
Other liabilities 11 177,500 177,500
Decommissioning liability 12 2,683,148 2,584,907
Promissory note 8 3,301,859 -
---------------------- ----------------------
Total liabilities 14,094,519 20,738,978
---------------------- ----------------------
Shareholders' equity
Share capital 13 50,740,292 50,740,292
Contributed surplus 1,195,738 1,521,845
Deficit (40,145,841) (38,879,338)
Accumulated other comprehensive
loss (522,385) (589,478)
---------------------- ----------------------
Total shareholders' equity 11,267,804 12,793,321
---------------------- ----------------------
Total liabilities and shareholders' $ 25,362,323 $ 33.532.299
equity
Nature of operations and going concern (Note 1)
Commitments and contingencies (Note 14)
The accompanying notes are an integral part of these
consolidated financial statements.
On behalf of the Board:
signed "Gage Jull" Director signed "Maria Charash" Director
Gage Jull Maria Charash
Arrow Exploration Corp.
Interim Consolidated Statements of Operations and
Comprehensive Loss
In United States Dollars
(Unaudited)
For the three months For the nine months
ended September 30, ended September
30,
Notes 2021 2020 2021 2020
------------------------------ ------ -------------- ---------------- ---------------- -----------------
Revenue
Oil and natural gas $ 1,860,600 $ 175,221 3,908,019 $ 5,211,329
Royalties (175,991) 32,713 (434,358) (258,904)
1,684,609 207,934 3,473,661 4,952,425
-------------- ---------------- ---------------- -----------------
Expenses
Operating 589,568 652,674 1,324,740 3,911,226
Administrative 839,947 785,641 3,131,644 2,990.705
Share based payments 13 224,204 442,145 (326,106) 263,614
Financing costs:
Accretion 12 33,678 157,518 98,647 462,402
Interest 173,807 (682,444) 551,494 (180,348)
Other 76,111 67,092 122,574 179,887
Foreign exchange loss 56,076 (54,252) 15,383 (147,742)
Depletion and depreciation 507,412 68,460 1,111,124 1,910,396
Impairment of oil
and gas properties 7 - - - 27,263,110
Other expense (income) (767,215) (85,154) (1,262,139) (108,947)
-------------- ---------------- ---------------- -----------------
1,733,588 1,351,680 4,767,361 36,544,303
-------------- ---------------- ---------------- -----------------
Loss before taxes (48,979) (1,143,746) (1,293,700) (31,591,878)
Income taxes (recovery)
Current (27,197) - (27,197) (8,787)
Deferred - 247,000 - (7,303,000)
-------------- ---------------- ---------------- -----------------
(27,197) 247,000 (27,197) (7,311,787)
Net loss for the period (21,782) (1,390,746) (1,266,503) (24,280,091)
Other comprehensive
income (loss)
Foreign exchange (196,464) (376,212) 67,093 (362,008)
-------------- ---------------- ---------------- -----------------
Net loss and comprehensive
loss for the period $ (218,246) $ (1,766,958) $ (1,199,410) $ (24,642,099)
Loss per share - basic
and diluted $ (0.00) $ (0.02) $ (0.02) $ (0.35)
Weighted average shares
outstanding
- basic and diluted
(1) 68,674,602 68,674,602 68,674,602 68,674,602
(1) The options and warrants have been excluded from the diluted
loss per share computation as they are anti-dilutive.
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Arrow Exploration Corp.
Interim Condensed Statements of Changes in Shareholders'
Equity
In United States Dollars
(Unaudited)
Accumulated
Share Contributed other
Capital Surplus comprehensive Deficit Total
loss Equity
------------------- --- ----------- -------------- ------------------ ------------- ------------
Balance January
1, 2021 $ 50,740,292 $ 1,521,845 $ (589,478) $ (38,879,338) $ 12,793,321
Net loss for
the period - - - (1,266,503) (1,266,503)
Comprehensive
income for the
period - - 67,093 - 67,093
Share based payments - (326,107) - - (326,107)
Balance September
30, 2021 $ 50,740,292 $ 1,195,738 $ (522,385) $ (40,145,841) $ 11,267,804
Accumulated
Share Contributed other
Capital Surplus comprehensive Deficit Total
loss Equity
------------------- --- ----------- -------------- ----------------- ------------- -------------
Balance January
1, 2020 $ 50,740,292 $ 1,603,788 $ (541,393) $ (6,646,246) $ 45,156,441
Net loss for
the period - - - (24,280,091) (24,280,091)
Comprehensive
income for the
period - - (362,008) - (362,008)
Share based payments - 263,614 - - 263,614
Balance September
30, 2020 $ 50,740,292 $ 1,867,402 $ (903,401) $ (30,926,337) $ 20,777,956
The accompanying notes are an integral part of these
consolidated financial statements.
Arrow Exploration Corp.
Interim Condensed Consolidated Statements of Cash Flows
In United States Dollars
(Unaudited)
For the nine months ended September 30, 2021 2020
------------------------------------------------------- -------------- ---------------
Cash flows used in operating activities
Net loss $ (1,266,503) $ (24,280,091)
Items not involving cash:
Deferred taxes - (7,303,000)
Share based payment (326,106) 263,614
Depletion and depreciation 1,111,124 1,910,396
Impairment of oil and gas properties - 27,263,110
Interest on leases 5,051 13,559
Interest on promissory note, net of forgiveness 546,442 (918,000)
Accretion 98,647 462,402
Foreign exchange loss (gain) 88,848 169,750
Changes in non--cash working capital balances:
Restricted cash 262,489 -
Trade and other receivables 1,489,818 1,928,830
Taxes receivable 40,617 (361,113)
Deposits and prepaid expenses (131,315) 107,681
Inventory (355,011) 17,454
Accounts payable and accrued liabilities (5,147,955) (614,110)
Cash used in operating activities (3,583,853) (1,358,609)
-------------- ---------------
Cash flows provided by (used in) investing
activities
Additions to exploration and evaluation
assets - (180,795)
Additions to property and equipment (230,480) -
Changes in non-cash working capital (2,173,682) 695,173
-------------- ---------------
Cash flows (used in) provided by investing
activities (2,404,162) 514,378
-------------- ---------------
Cash flows used in financing activities
Lease payments (18,290) (53,881)
Increase in long-term debt - 29,988
Cash flows used in financing activities (18,290) (23,893)
Effect of changes in the exchange rate on
cash (918) (126,283)
Decrease in cash (6,007,223) (994,407)
Cash, beginning of period 11,473,204 1,085,655
-------------- ---------------
Cash, end of period 5,465,981 $ 91,248
Supplemental information
Interest paid $ - $ 71,709
Taxes paid $ - $ -
The accompanying notes are an integral part of these
consolidated financial statements.
1. Corporate Information
Arrow Exploration Corp. ("Arrow" or "the Company") is a public
junior oil and gas company engaged in the acquisition, exploration
and development of oil and gas properties in Colombia and in
Western Canada. The Company's shares trade on the TSX Venture
Exchange under the symbol AXL. During October 2021, the Company's
common shares started to trade in the AIM Market of the London
Stock Exchange plc under the same AXL symbol (see Note 17). The
head office of Arrow is located at 1430, 333 - 11th Ave SW,
Calgary, Alberta, Canada, T2R 1L9 and the registered office is
located at Suite 1600, 421 - 7th Avenue SW, Calgary, Alberta,
Canada, T2P 4K9.
These consolidated financial statements have been prepared on a
going concern basis, which assumes that the Company will continue
its operations for the foreseeable future and will be able to
realize its assets and discharge its liabilities in the normal
course of business. The Company had a net loss of $32,233,092 for
the year 2020, an interim net loss of $1,266,503 for the nine
months ended September 30, 2021, and had a working capital of
$783,707 as at September 30, 2021. During 2020, oil and gas prices
have been significantly depressed and the global impact of the
COVID-19 pandemic has fostered a great deal of uncertainty for the
future operations of the Company. The Company's ability to continue
as a going concern is dependent on management's ability to identify
additional sources of capital and to raise sufficient resources to
fund ongoing operating expenses and commitments. There is no
assurance these initiatives will be successful in the future. These
conditions indicate the existence of material uncertainties that
may cast significant doubt regarding the applicability of the going
concern assumption. These interim condensed consolidated financial
statements do not give effect to adjustments that would be
necessary to the carrying values and classification of assets and
liabilities should the Company be unable to continue as a going
concern. These adjustments could be material.
2. Basis of Presentation
Statement of compliance
These interim condensed consolidated financial statements (the
"Financial Statements") have been prepared in accordance with
International Accounting Standard ("IAS") 34 Interim Financial
Reporting. These Financial Statements were authorised for issue by
the board of directors of the Company on November 23, 2021. They do
not contain all disclosures required by International Financial
Reporting Standards ("IFRS") for annual financial statements and,
accordingly, should be read in conjunction with the audited
consolidated financial statements as at December 31, 2020.
These Financial Statements have been prepared on the historical
cost basis, except for financial assets and liabilities recorded in
accordance with IFRS 9. The Financial Statements have been prepared
using the same accounting policies and methods as the consolidated
financial statements for the year ended December 31, 2020. In
preparing these condensed consolidated financial statements, the
significant judgements made by management in applying the group's
accounting policies and the key sources of estimation uncertainty
were the same as those that applied to the consolidated financial
statements for the year ended December 31, 2020.
3. Restricted Cash
September December
30 , 31, 2020
2021
-------------------------------- ---------- ----------------- --------- ----------------
Colombia (i) $ 53,726 $ 316,216
Canada (ii) 431,537 406,556
Sub-total 485,263 722,772
Long-term portion (485,263) (460,283)
----------------- ----------------
Current portion of restricted
cash $ - $ 262,489
================= ================
(i) Restricted cash is comprised by a deposit held as collateral
to guarantee abandonment expenditures related to the Mateguafa well
and funds in-trust related to resuming production in the Rio Cravo
Este-1 well in the Tapir block
(ii) Pursuant to Alberta government regulations, the Company was
required to pay a $326,582 (CAD $416,081) deposit with respect to
the Company's liability rating management ("LMR"). The deposit is
held by a Canadian chartered bank with interest paid to the Company
on a monthly basis based on the bank's deposit rate. The remaining
$104,955 pertain to lease and other deposits held in Canada.
4. Trade and other receivables
September December
30, 31, 2020
2021
----------------------------------- ---------- ---------------- --------- ----------------
Trade receivables, net of
advances $ 75,661 $ 99,061
Other accounts receivable 891,111 2,357,529
Total trade and other receivables $ 966,772 $ 2,456,590
================ ================
As at September 30, 2021, other accounts receivable include
$619,465 (December 31, 2020 - $2,185,890) receivable from a partner
in the Tapir block and corresponds to reimbursable capital
expenditures incurred on the Tapir block, which are expected to be
recovered through production during the remaining of 2021 and
2022.
5. Taxes receivable
September December
30, 31, 2020
2021
------------------------------------- ---------- ---------------- --------- ----------------
Value-added tax (VAT) credits
recoverable $ 382,856 $ 932,282
Income tax withholdings and
advances, net 1,236,209 727,401
$ 1,619,065 $ 1,659,683
================ ================
The VAT recoverable pertains to non-compensated value-added tax
credits originated in Colombia as operational and capital
expenditures are incurred. Most of the Company's sales are
considered exports, which are not subject to VAT. The Company is
entitled to claim for the reimbursement of these VAT credits.
6. Exploration and Evaluation
September December
30, 31, 2020
2021
---------------------------- ---------- ---------------- --------- ----------------
Balance, beginning and end
of the period $ 6,961,667 $ 6,961,667
================ ================
7. Property and Equipment
Right of
Oil and Gas Use and
Cost Properties Other Assets Total
---------------------------------- ------------------- ------------------- ---------------------
Balance, December 31,
2020 $ 30,436,344 $ 182,105 $ 30,618,449
Additions 228,500 1,382 229,882
------------------- ------------------- ---------------------
Balance, September 30,
2021 $ 30,664,844 $ 183,487 $ 30,848,331
------------------- ------------------- ---------------------
Accumulated depletion
and depreciation and impairment
Balance, December 31,
2020 $ 20,718,742 $ 83,207 $ 20,801,949
Depletion and depreciation 1,087,306 23,817 1,111,123
Balance, September 30,
2021 $ 21,806,048 $ 107,024 $ 21,913,072
------------------- ------------------- ------------------
Foreign exchange
Balance December 31, 2020 $ 339,363 $ (4,166) $ 335,197
Effects of movements in
foreign
exchange rates (246) 353 107
------------------- ------------------- ------------------
Balance September 30,
2021 $ 339,117 $ (3,813) $ 335,304
------------------- ------------------- ------------------
Net Book Value
Balance December 31, 2020 $ 10,056,965 $ 94,732 $ 10,151,697
Balance September 30,
2021 $ 9,197,913 $ 72,650 $ 9,270,563
As at March 31, 2020, the Company reviewed its cash-generating
unit's ("CGU") property and equipment and determined that there
were indicators of impairment present related to the decrease in
reserves. The company prepared estimates of both the value in use
and fair value less costs of disposal of its CGUs and it was
determined that carrying value of each CGU exceeded its recoverable
amount and, therefore, an impairment provisions of $27,263,110 was
required. The following table outlines forecast benchmark prices
and exchange rates used in the Company's impairment test as at
September 30, 2020:
Exchange AECO Spot
rate Gas Brent
Year $US / $Cdn CDN$/MCF $US/Bbl
------------------------------ ----------------- ---------------- ---------------
2020 0.71 1.90 32.00
2021 0.72 2.30 42.00
2022 0.73 2.40 51.00
2023 0.75 2.49 58.00
2024 0.75 2.54 62.00
2025 0.75 2.60 63.24
Thereafter (inflation 0.80 2.0%/yr 2.0%/yr
%)
These benchmark prices reflect the price forecasts, effective
March 31, 2020 from Boury Global Energy Consultants.
The Company used a 15% discount rate in Canada, and 17.5% in
Colombia for the June 30, 2020 impairment test, which took into
account risks specific to each CGU and inherent in the oil and gas
business. As at June 30, 2020, a 0.5% decrease in the discount rate
applied or 2% change in the forecast benchmark prices would not
have resulted in additional impairment.
8. Promissory Note
The promissory note was issued to Canacol Energy Ltd.
("Canacol") as partial consideration in the acquisition of Carrao
Energy S.A. from Canacol. The promissory note bears interest at 15%
per annum, was initially due on January 28, 2019 and subsequently
extended to April 30, 2019, October 1, 2020 and April 1, 2021.
Arrow and Canacol entered into a third, fourth and fifth Amended
and Restated Promissory Notes in December 2019, March and August
2020, respectively.
In May 2021, a sixth and amended and restated promissory note
was agreed with Canacol which includes that the new principal
amount of the promissory note is $6,026,166 (including interest and
fees), which bares interest at an annual rate of 15%, and includes
the following repayment provisions:
- In the event that the Company does not complete a successful
equity financing of $12,000,000 or more by September 30, 2021, the
payment of the principal plus interest shall be made as
follows:
- Two payments of $1,600,000 in cash due on July 30 and December 30, 2022; and
- Issuance of common shares of the Company on July 30, 2022 for
the remaining balance for an amount of shares resulting from
Canacol having less than 19.9%, with any remainder payable in
cash
- In the event that the Company completes a successful equity
financing of $12,000,000 or more by September 30, 2021, the payment
of the principal plus interest shall be made as follows:
- One payment of $3,200,000 in cash due 15 days from the financing closing date; and
- At the discretion of the Company, the balance shall be paid
either in cash or by issuance of common shares of the Company for
an amount of shares resulting from Canacol having less than 19.9%,
and any remainder balance payable in cash.
The Company also commits to replace the letters of credit
currently guaranteed by Canacol and, Canacol commits to absorb the
Company's commitments and balances related to the OBC pipeline
dispute. The Company has granted a general security interest to
Canacol for the obligations under the Promissory Note which will be
subordinated to second position in the event the Company secures
additional financing.
Subsequent to September 30, 2021, the parties entered into a
seventh amended and restated promissory note (see Note 17)
9. Lease Obligations
A reconciliation of the discounted lease obligation is set forth
below:
2021
-----------
Obligation, beginning of the period $ 70,842
Changes in existing lease 1,381
Lease payments (18,290)
Accretion 5,051
Effects of movements in foreign exchange rates 170
-----------
Obligation, end of the period $ 59,155
===========
Current portion $ 19,662
Long-term portion 39,493
-----------
$ 59,155
===========
As at September 30, 2021, the Company has the following future
commitments associated with its office lease obligations:
Less than one year $ 24,693
2 - 5 years 43,213
--------
Total lease payments 67,906
Amounts representing interest over
the term (8,751)
--------
Present value of the net obligation $ 59,155
========
10. Long-term debt
During 2020, the Company owes $31,396 (CAD$40,000) from the
Canadian Emergency Business Account (CEBA) program implemented by
the government of Canada to provide support to small businesses
affected by the COVID-19 pandemic. The loan does not bear any
interest until December 2022 and is subject to a 25% forgiveness if
the full balance is repaid before that date.
11. Other Liabilities
The other liabilities of the Company relate to an environmental
fee in Colombia that is levied on capital projects. The fee is
calculated as 1% of the project cost. The program is administered
by the Colombian National Authority of Environmental Licences
("ANLA") and is levied on projects that utilize surface water or
deep water wells that may have an impact on the environment. The
funds are generally used in the affected communities for purposes
of land purchases, biomechanical works (e.g. containment walls in
rivers), reforestation, research projects and others. At September
30, 2021 the Company had provided for $177,500 (December 31, 2020 -
$177,500) for the environmental fee.
12. Decommissioning Liability
The following table presents the reconciliation of the beginning
and ending aggregate carrying amount of the obligation associated
with the decommissioning of oil and gas properties.
September December
30, 31, 2020
2021
---------------- --------- ----------------
Obligation, beginning of the year $ 2,584,907 $ 8,173,222
Change in estimated cash flows - (109,864)
Liabilities disposed - (6,016,514)
Accretion expenses 98,647 524,477
Effects of movements in foreign
exchange rates (406) 13,586
---------------- --------- ----------------
Obligation, end of the year $ 2,683,148 $ 2,584,907
================ ========= ================
T he obligation was calculated using a risk-free discount rate
range of 1.0% to 2.0% in Canada (2020: 1.50% to 2.75%) and 5.90% in
Colombia (2020: 5.90%) with an inflation rate of 2.0% and 2.5%,
respectively (2020: 2.0% and 2.5%). It is expected that the
majority of costs are expected to occur between 2022 and 2033. The
undiscounted amount of cash flows, required over the estimated
reserve life of the underlying assets, to settle the obligation,
adjusted for inflation, is estimated at $3,779,120 (2020:
$4,072,683) .
13. Share Capital
(a) Authorized: Unlimited number of common shares without par
value
(b) Issued:
Common shares Shares Amounts
Balance as at September 30, 2021 and
December 31, 2020 68,674,602 $ 50,740,292
========== ============
(c) Stock options:
The Company has a stock option plan that provides for the
issuance to its directors, officers, employees and consultants
options to purchase a number of non-transferable common shares not
exceeding 10% of the common shares that are outstanding from time
to time which is the number of shares reserved for issuance under
the plan. The exercise price is based on the closing price of the
Company's common shares on the day prior to the day of the grant. A
summary of the status of the Company stock option plan as at
September 30, 2021 and December 31, 2020 and changes during the
respective periods ended on those dates is presented below:
September 30, 2021 December 31, 2020
------------------------------------ ------------------------------------
Weighted Weighted
average average
exercise exercise
Number Price Number price
Stock Options of options (CAD $) of options (CAD $)
--------------------------- ------------------ ---------------- ------------------ ----------------
Beginning of period 6,859,000 $0.40 5,470,000 $0.99
Granted - - 4,319,000 $0.05
Exercised - - - -
Expired/Forfeited (1,145,000) $1.04 (2,930,000) $0.96
------------------ ---------------- ------------------ ----------------
End of period 5,714,000 $0.27 6,859,000 $0.40
================== ================ ================== ================
Exercisable, end
of period 2,369,669 $0.40 1,530,001 $1.06
================== ================ ================== ================
Weighted
Exercise Average Number
Price Remaining Exercisable
Number (CAD Contractual Date of September
Date of Grant Outstanding $) Life Expiry 30, 2021
--------------- ------------- --------- ------------- ---------- -------------
October 22, Oct. 22,
2018 1,050,000 $1.15 7.07 years 2028 700,000
May 3,
May 3, 2019 345,000 $0.31 7.59 years 2029 230,002
March 20, March 20,
2020 1,200,000 $0.05 8.47 years 2030 400,000
April 13, April 13,
2020 2,775,000 $0.05 8.54 years 2030 925,000
September Sept. 18,
18, 2020 344,000 $0.05 8.72 years 2030 114,667
--------------- ------------- --------- ------------- ---------- -------------
Total 5,714,000 $0.27 8.21 years 2,369,663
--------------- ------------- --------- ------------- ---------- -------------
During the nine months ended September 30, 2021, the Company has
recognized $326,107 (2020 - $263,614) as share based payments
income, with a corresponding decrease in the contributed surplus
account.
(d) Phantom shares:
During 2020, the Company adopted a phantom share program for
compensation of its Directors and executives and granted 13,000,000
phantom common shares of the Company, of which 12,583,333 are
outstanding, and are vested immediately at CAD $0.00 per share. As
at September 30, 2021, the Company has accrued $1,185,199 as share
based payments, which are included in accounts payable and accrued
liabilities at such date. Subsequent to September 30, 2021, these
phantom shares were exercised and used as part of management's
contribution to the subscription of common shares issued during the
AIM London listing described in Note 17.
(e) Phantom stock options:
During 2020, the Company adopted a phantom stock option program
for compensation of its executives and granted 1,681,000 phantom
stock options of the Company which are vested in equal parts over
the three following years after granted. As at September 30, 2021,
the Company has accrued $ 92,359 as share based payments, which are
included in accounts payable and accrued liabilities at such date.
Subsequent to September 30, 2021, these phantom options' vesting
was accelerated, and were exercised and used as part of
management's contribution to the subscription of common shares
issued during the AIM London listing described in Note 17.
14. Commitments and Contingencies
Exploration and Production Contracts
The Company has entered into a number of exploration contracts
in Colombia which require the Company to fulfill work program
commitments and issue financial guarantees related thereto. In
aggregate, the Company has outstanding exploration commitments at
September 30, 2021 of $17.8 million. T he Company, in conjunction
with its partners, have made applications to cancel a further $15.5
million ($5.8 million Arrow's share) in commitments on the Macaya
and Los Picachos blocks. The remaining commitments are expected to
be satisfied by means of seismic work, exploration drilling and
farm-outs. Presented below are the Company's exploration and
production contractual commitments at September 30, 2021:
Less
than
Block 1 year 1-3 years Thereafter Total
--------------------- ------------------ ------------------------ ---------------------- ----------------------
COR-39 - 12,000,000 - 12,000,000
Los
Picachos - 1,970,000 - 1,970,000
Macaya - 3,830,000 - 3,830,000
----------------- ------------------------ ---------------------- ----------------------
Total - 17,800,000 - 17,800,000
================= ======================== ====================== ======================
Contingencies
From time to time, the Company may be involved in litigation or
has claims sought against it in the normal course of business
operations. Management of the Company is not currently aware of any
claims or actions that would materially affect the Company's
reported financial position or results from operations. Under the
terms of certain agreements and the Company's by-laws the Company
indemnifies individuals who have acted at the Company's request to
be a director and/or officer of the Company, to the extent
permitted by law, against any and all damages, liabilities, costs,
charges or expenses suffered by or incurred by the individuals as a
result of their service.
Oleoducto Bicentenario de Colombia ("OBC") Pipeline
The Company is party to an agreement with Canacol that entitles
it to a 0.5% interest in OBC, which owns a pipeline system intended
to link Llanos basin oil production to the Caño Limon oil pipeline
system in Colombia. Likewise, Canacol is currently in litigation
with OBC in relation to ship or pay obligations that were
terminated by Canacol in July 2018 under force majeure. On March
27, 2019, the court in charge of the case ruled in favor of the OBC
and opined that the obligations under the ship or pay contract
remains in force. Subsequently, on May 13, 2019, Canacol filed an
appeal at the State Council, a higher-level court in the Colombian
judiciary system, requesting annulment of this ruling. Likewise, in
July 2019, OBC has also started litigation against Canacol for not
honouring its ship or pay obligations under the contract.
During 2020 and 2021, there has been negotiations between the
parties involved in order to settle this case and settlement
agreements have been approved by courts. As a result, Arrow does
not have any current or future requirement to satisfy past and
future ship or pay obligations and has reversed its $658,654
accrual accordingly.
Letters of Credit
At September 30, 2021, the Company had obligations under Letters
of Credit ("LC's") outstanding totaling $5.2 million to guarantee
work commitments on exploration blocks and other contractual
commitments. Of the total, approximately $4.1 million has been
guaranteed by Canacol. Under an agreement, Canacol will continue to
provide security for Arrow's Letters of Credit providing that Arrow
uses all reasonable efforts to replace the LC's. In the event the
Company fails to secure the renewal of the letters of credit
underlying the ANH guarantees, or any of them, the ANH could decide
to cancel the underlying exploration and production contract for a
particular block, as applicable. In this instance, the Company
could risk losing its entire interest in the applicable block,
including all capital expended to date and could possibly also
incur additional abandonment and reclamation costs if applied by
the ANH.
Current Outstanding Letters of Credit
Contract Beneficiary Issuer Type Amount
(US $) Renewal Date
---------- ------------- ---------------- ------------- ----------- -------------
Dec. 26,
Tapir ECP Samaria Llanos Abandonment $52,898 2021
April 14,
SANTA ANH Carrao Energy Abandonment $643,423 2022
Canacol and Financial December
ISABEL ANH Carrao Capacity $1,672,162 31, 2021
CORE - December
39 ANH Canacol Compliance $2,400,000 31, 2021
Financial April 14,
OMBU ANH Carrao Energy Capacity $436,300 2022
---------- ------------- ---------------- ------------- ----------- -------------
Total $5,204,783
15. Financial Instruments
The Company holds various forms of financial instruments. The
nature of these instruments and the Company's operations expose the
Company to commodity price, credit and foreign exchange risks. The
Company manages its exposure to these risks by operating in a
manner that minimizes its exposure to the extent practical.
(a) Commodity price risk
Commodity price risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate as a result of
changes in commodity prices. Lower commodity prices can also impact
the Company's ability to raise capital. Commodity prices for crude
oil are impacted by world economic events that dictate the levels
of supply and demand. From time to time the Company may attempt to
mitigate commodity price risk through the use of financial
derivatives.
i) Financial Derivative Contracts
During 2020, the Company had one financial derivative contract
in order to manage commodity price risk. This instrument was not
used for trading or speculative purposes. Arrow had not designated
its financial derivative contract as effective accounting hedge,
even though the Company considered the commodity contract to be an
effective economic hedge. As a result, the financial derivative
contract was recorded on the statements of financial position at
fair value, with the changes in fair value being recognized as an
unrealized gain or loss in the statement of operations and
comprehensive loss. This contract was terminated during 2020.
The estimated fair value of the derivative financial instrument
in Level 2 at each measurement date have been determined based on
appropriate internal valuation methodologies and/or third party
indications. Level 2 fair values determined using valuation models
require the use of assumptions concerning the amount and timing of
future cash flows and discount rates. In determining these
assumptions, the Company primarily relied on external,
readily-observable quoted market inputs as applicable, including
crude oil forward benchmark commodity prices and volatility, and
discounted to present value as appropriate. The resulting fair
value estimates may not necessarily be indicative of the amounts
that could be realized or settled in a current market transaction
and these differences may be material. The realized gain on risk
management activities is included as part of revenues in the
consolidated statements of operations and comprehensive loss. The
gains on risk management activities for the period are comprised as
follows:
For the three
months ended
September 30
---------------
2021 2020
---------------------------------------- --------------- -------------
Realized risk management gain
on commodity contract settled $ - $ 1,288,523
Unrealized gain on commodity contract - -
outstanding
$ - $ 1,288,523
-------------------------------------------------------- -------------
(b) Credit Risk
Credit risk reflects the risk of loss if counterparties do not
fulfill their contractual obligations. The majority of the
Company's account receivable balances relate to petroleum and
natural gas sales and balances receivables with partners in areas
operated by the Company. The Company's policy is to enter into
agreements with customers that are well established and well
financed entities in the oil and gas industry such that the level
of risk is mitigated. In Colombia, a significant portion of the
trade accounts receivable balance is with producing company, which
accounts for more than 85% of such balance, under an existing
sale/offtake agreement with prepayment provisions and priced using
the Brent benchmark. Other accounts receivable include a
significant balance with a partner with an existing agreement to
use 50% of its production entitlement to repay this balance.
The Company's trade account receivables primarily relate to
sales of crude oil and natural gas, which are normally collected
within 25 days (in Canada) and 15 days in advance (in Colombia) of
the month of production. Other accounts receivable mainly relate to
balances owed by the Company's partner in one of its blocks, and
are mainly recoverable through production. The Company has
historically not experienced any collection issues with its
customers and partners.
(c) Market Risk
Market risk is comprised of two components: foreign currency
exchange risk and interest rate risk.
i) Foreign Currency Exchange Risk
The Company operates on an international basis and therefore
foreign exchange risk exposures arise from transactions denominated
in currencies other than the United States dollar. The Company is
exposed to foreign currency fluctuations as it holds cash and
incurs expenditures in exploration and evaluation and
administrative costs in foreign currencies. The Company incurs
expenditures in Canadian dollars, United States dollars and the
Colombian peso and is exposed to fluctuations in exchange rates in
these currencies. There are no exchange rate contracts in
place.
ii) Interest Rate Risk
Interest rate risk is the risk that future cash flows will
fluctuate as a result of changes in market interest rates. The
Company is not currently exposed to interest rate risk as it
borrows funds at a fixed coupon rate of 15% on the promissory
notes.
(d) Liquidity Risk
Liquidity risk includes the risk that, as a result of the
Company's operational liquidity requirements:
-- The Company will not have sufficient funds to settle a transaction on the due date;
-- The Company will be forced to sell financial assets at a
value which is less than what they are worth; or
-- The Company may be unable to settle or recover a financial asset.
The Company's approach to managing its liquidity risk is to
ensure, within reasonable means, sufficient liquidity to meet its
liabilities when due, under both normal and unusual conditions,
without incurring unacceptable losses or jeopardizing the Company's
business objectives.
The Company prepares annual capital expenditure budgets which
are monitored regularly and updated as considered necessary.
Petroleum and natural gas production is monitored daily to provide
current cash flow estimates and the Company utilizes authorizations
for expenditures on projects to manage capital expenditures. Any
funding shortfall may be met in a number of ways, including, but
not limited to, the issuance of new debt or equity instruments,
further expenditure reductions and/or the introduction of joint
venture partners.
(e) Capital Management
The Company's objective is to maintain a capital base sufficient
to provide flexibility in the future development of the business
and maintain investor, creditor and market confidence. The Company
manages its capital structure and makes adjustments in response to
changes in economic conditions and the risk characteristics of the
underlying assets. The Company considers its capital structure to
include share capital, bank debt (when available), promissory notes
and working capital, defined as current assets less current
liabilities. In order to maintain or adjust the capital structure,
from time to time the Company may issue common shares or other
securities, sell assets or adjust its capital spending to manage
current and projected debt levels. The Company monitors leverage
and adjusts its capital structure based on its net debt level. Net
debt is defined as the principal amount of its outstanding debt,
less working capital items. In order to facilitate the management
of its net debt, the Company prepares annual budgets, which are
updated as necessary depending on varying factors including current
and forecast crude oil prices, changes in capital structure,
execution of the Company's business plan and general industry
conditions. The annual budget is approved by the Board of Directors
and updates are prepared and reviewed as required.
The Company's capital includes the following:
September 30, December 31,
2020
2021
-------------------- ---------------------------
Working capital, before promissory
note 783,707 3,839,384
Promissory note (3,301,860) (5,772,324)
-------------------- ---------------------------
$ (2,518,153) $ (1,932,940)
==================== ===========================
The current challenging economic climate may lead to further
adverse changes in cash flows, working capital levels and debt
balances, which may also have a direct impact on the Company's
operating results and financial position. These and other factors
may adversely affect the Company's liquidity and its ability to
generate income and cash flows in the future. At September 30,
2021, the Company remains in compliance with all terms of its debt
and, based on current available information, management expects to
comply with all terms during the subsequent 12 months period.
However, in light of the current volatility in commodity prices and
uncertainty regarding the timing for recovery in such prices and
the effect of the COVID-19 pandemic, the preparation of financial
forecast is challenging.
16. Segmented Information
The Company has two reportable operating segments: Colombia and
Canada. The Company, through its operating segments, is engaged
primarily in oil exploration, development and production, and the
acquisition of oil and gas properties. The Canadian segment is also
considered the corporate segment and covers the corporate overhead
expenses. The following tables show information regarding the
Company's segments for the three and nine months ended and as at
September 30:
Three months ended September Colombia Canada Total
30, 2021
------------------------------ --- --------------- ------------ ------------
Revenue:
Oil Sales $ 1,678,526 $ - $ 1,678,526
Natural gas and liquid
sales 182,074 182,074
Royalties 155,336 20,655 175,991
Expenses 636,806 1,096,782 1,733,588
Income taxes (recovery) (27,197) - (27,197)
Net income (loss) $ 913,581 $ (935,363) $ (21,782)
--- --------------- ------------ ------------
Nine months ended September
30, 2021
------------------------------
Revenue:
Oil Sales $ 3,478,459 $ - $ 3,478,459
Natural gas and liquid
sales - 429,560 429,560
Royalties 391,372 42,986 434,358
Expenses 2,371,656 2,395,705 4,767,361
Income taxes (recovery) (27,197) - (27,197)
Net income (loss) $ 742,628 $ (2,009,131) $ (1,266,503)
--- --------------- ------------ ------------
As at September 30, 2021 Colombia Canada Total
----------------------------------- ----------- ------------ ------------
Current assets $ 5,055,424 $ 3,589,406 $ 8,644,830
Non-current:
Restricted cash 53,726 431,537 485,263
Exploration and evaluation 6,961,667 - 6,961,667
Property and equipment 6,224,873 3,045,690 9,270,563
Total Assets $ 18,295,690 $ 7,066,633 $ 25,362,323
----------- ------------ ------------
Current liabilities $ 3,023,180 $ 4,837,943 $ 7,861,123
Non-current liabilities:
Other liabilities 177,500 - 177,500
Lease obligation - 39,493 39,493
Decommissioning liability 2,174,968 508,180 2,683,148
Long-term debt - 31,396 31,396
Promissory note - 3,301,860 3,301,860
----------- ------------ ------------
Total liabilities $ 5,375,648 $ 8,718,872 $ 14,094,519
----------- ------------ ------------
Three months ended September Colombia Canada Total
30, 2020
------------------------------ --- ------------ ---------- ------------
Revenue:
Oil Sales $ 27,838 $ - $ 27,838
Natural gas and liquid
sales 147,383 147,383
Royalties (44,063) 11,350 (32,713)
Expenses 1,091,338 260,342 1,351,680
Income taxes 247,000 - 247,000
Net income (loss) $ (1,266,437) $ (124,309) $ (1,390,746)
--- ------------ ---------- ------------
Nine months ended September
30, 2020
-----------------------------
Revenue:
Oil Sales $ 4,915,399 $ - $ 4,915,399
Natural gas and liquid
sales - 295,930 295,930
Royalties 234,199 24,705 258,904
Expenses 7,265,129 2,016,063 9,281,192
Impairment of oil and
gas properties 27,263,110 - 27,263,110
Income taxes (recovery) (7,311,786) - (7,311,786)
Net loss $ (22,535,253) $ (1,744,838) $ (24,280,091)
--- ------------- ------------ -------------
As at September 30, 2020 Colombia Canada Total
------------------------------- --- ----------- ----------- ------------
Current assets $ 5,038,931 $ 80,978 $ 5,119,909
Non-current:
Deferred income taxes 5,479,000 - 5,479,000
Other receivables 788,777 - 788,777
Restricted cash 53,726 387,558 441,284
Exploration and evaluation 7,108,251 - 7,108,251
Property, plant and equipment 24,668,577 3,097,113 27,765,690
Total Assets $ 43,137,262 $ 3,565,649 $ 46,702,911
--- ----------- ----------- ------------
Current liabilities $ 7,481,548 $ 3,230,424 $ 10,711,972
Non-current liabilities:
Other liabilities 1,007,849 - 1,007,849
Lease obligation - 55,406 55,406
Decommissioning liability 8,115,697 509,728 8,625,425
Long-term debt - 29,988 29,988
Promissory note - 5,494,314 5,494,314
Total liabilities $ 16,605,094 $ 9,319,860 $ 25,924,954
--- ----------- ----------- ------------
17. Subsequent events
On October 18, 2021, a seventh amended and restated promissory
note was agreed with Canacol which includes that the new principal
amount of the promissory note is $6,026,166, which bares interest
at an annual rate of 15%, and will be paid as follows:
- The amount of C$3,900,000 plus all Canacol's expenses in
connection with this amendment and related matters, shall be paid
not later than October 31, 2021;
- The 50% of the remaining principal and interest shall be paid
no later than December 31, 2022; and
- The remaining principal and interest shall be paid not later than June 30, 2023
Also, provided the Company makes the payment due on October 31,
2021, Canacol agrees to forgive $800,000 assumed by Canacol for
excess pipeline shipping costs as a result of the settlement of the
OBC pipeline dispute. On October 27, 2021, the Company paid
C$3,900,000 to Canacol as stipulated in this seventh amendment.
On October 20, 2021, the Company announced that it has
conditionally raised approximately GBP8.8 million (C$15.0 million),
through a placing and subscription for new common shares with new
investors, Canacol Energy Ltd., and executive management (together,
the "Fundraising") and has published an AIM Admission Document in
connection with the admission of the enlarged share capital of the
Company to trading on the AIM Market of the London Stock Exchange
plc. The Fundraising consisted on placement and subscription of
140,949,545 new common shares at an issue price of GBP0.0625
(C$0.106125) per new common share. The Company's executive
management invested approximately C$ 1.41 million and Canacol
participated in the subscription to hold 19.9% of the enlarged
share capital. Investors received one warrant for every two new
common shares, exercisable at C$0.15282 per new common share for 24
months from the AIM admission date (October 25, 2021).
The net proceeds of the Fundraising, together with the Company's
existing funds, are expected to be used to drill two wells at Rio
Cravo Este, commencing by the end of 2021, and will also be
deployed in drilling the Carrizales Norte-1 exploration well.
On November 24, 2021, the Company announced that it has closed a
non-brokered private placement of C$395,375 for issuance of
3,882,676 new common shares.
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END
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